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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


Team Careers360 7th Jan, 2024
Answer (1)
Team Careers360 24th Jan, 2024

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.

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