Question : Which of the following is a limitation of Financial Statement Analysis?
Option 1: Ignores the Qualitative elements
Option 2: Not free from personal bias
Option 3: Both 1 and 2
Option 4: None of the above
Correct Answer: Both 1 and 2
Solution : Answer = Both 1 and 2
1. Bias: Financial statements are the result of documented facts, applied accounting principles and practices, and the accountants' subjective assessments based on various circumstances. As a result, bias could be seen in the data, and financial statements might not accurately represent the situation financially.
2. Absence of Qualitative Information: Financial statements only include quantitative data; they do not provide qualitative data on labour relations, industrial relations, industrial climate, work quality, etc.
Hence, the correct option is 3.
