Question

The IAS Conceptual Framework requires financial reporting to provide financial information that is useful to the users of the financial statements to make economic decisions about a business entity.

However many critics believe that there are too many limitations in the preparation of financial statements for them to be useful.

Required:
Critically discuss the usefulness and limitations of financial statements.

Answer 1

Usefulness of financial statements are as follows-

A.bridging the gap in the management because financial statement will basically reflect a company's financial performances and they will be representing the profit and loss of the business.

B. financial statements are also used as a tool to attract various kinds of investors into the business because those business will be relying upon the the financial statement as they are audited.

C.these financial statements will be helpful in order to avail the credit from various kinds of lenders

D. This financial statement can also be used for stock exchanges in order to file various kinds of regulatory requirements.

E. This financial statement can we use by governments in order to formulate various kinds of financial policies.

Limitations of financial statements are as follows-

A. Financial statements are dependent upon historical cost

B.financial statements are only representative of the quantitative reflection of a business position & it is not a reflective of qualitative position

C.financial statements can be reflecting a possibility of business because financial statements are not always the accurate representation of the company

D.there are lack of details in financial statement because they will not disclosing the nature of the assets.

E.there are not always comparable financial statements because they have been prepared according to different accounting estimates.