How can we overcome the limitations of financial statements?

Last Updated: 17 Mar 2023
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Financial statements are an important source of information to multiple groups of people. These people may belong within the organization or they may be outsiders. The internal users of financial statement include managers, financial analysts, CFOs and accountants. Whereas external users may include government agencies, such as tax agencies and the securities and exchange commission, financial consultants, investors, creditors, etc.

Now there are certain limitations that financial statements have, and this may cause problems in making intra and inter-company comparisons.

In order to minimize or overcome the short-comings of financial statements investors, accountants, CFOs have all developed different analytical tools and techniques. For internal users, especially managers, performance measures have played a significant role in minimizing the effects of these limitations. Analysts now use tools that aid in valuing company’s performance beyond financial results, bringing factors like leadership, patents, specialized workforce, brands and human resources into the picture. Technology has removed a lot of barriers, especially with respect to finance, as companies today are also implementing financial data warehouses the use of which makes it a lot easier for organizations and individuals to make decisions that are logical and in most cases correct.

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Moreover, some companies are also voluntarily disclosing information about their strategy, key success factors and their management objectives in supplements to their financial statements. This gives the investors, creditors, and other external users of financial statements more of an idea of what the firm is about and where it may be standing in a couple of years from now.

REFERENCE

Helfert, Erich A. (2001). Financial Analysis Tools and Techniques: A Guide For Managers. McGraw-Hill.

 

Related Questions

on How can we overcome the limitations of financial statements?

How Management Accounting Helps In Overcoming The Limitations Of Financial Accounting?
Management accounting provides detailed and timely information that can be used to make informed decisions, while financial accounting only provides a historical view of a company's financial performance. This helps managers to overcome the limitations of financial accounting by providing them with the information they need to plan, control, and evaluate the performance of their organization.
How To Overcome The Limitations Of Management Accounting?
To overcome the limitations of management accounting, businesses can integrate other data sources such as market research and customer feedback to gain a more holistic view of their operations. Additionally, utilizing advanced technologies such as artificial intelligence and machine learning can help improve the accuracy and relevance of management accounting data.
How Management Can Overcome The Limitations Of Branches Of Accounting ?
Management can overcome the limitations of branches of accounting by integrating the different branches and utilizing a holistic approach to financial management. This can be achieved through effective communication, collaboration, and leveraging technology to streamline processes and improve decision-making.
How To Overcome Limitations Of Financial Statements ?
One way to overcome limitations of financial statements is to use supplementary information such as management commentary or non-financial performance metrics. Another approach is to conduct ratio analysis or trend analysis to gain a deeper understanding of the financial data presented in the statements.
How To Overcome Limitations Of Ratio Analysis ?
To overcome limitations of ratio analysis, it is important to use multiple methods of analysis such as trend analysis and comparative analysis. Additionally, it is important to consider industry standards and economic conditions when interpreting the results of ratio analysis.

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How can we overcome the limitations of financial statements?. (2017, May 31). Retrieved from https://phdessay.com/how-can-we-overcome-the-limitations-of-financial-statements/

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