Question

Which of the following is the limitation of financial statement analysis?

• A. Historical analysis
• B. Ignores price level changes
• C. Not free from bias
• D. All of the above

Answer 1

The correct option is D All of the above

Financial statements of a company as useful as they are have a few limitations as well. They are prepared on historical cost as all the assets of the company are recorded at the cost.

They ignore price level changes because of the historical cost concept. They are not free from personal bias, as the statements are prepared by humans personal bias being a human tendency might affect the financial statements.