Question

What are the qualitative and quantitative limitations of financial statements? In other words, what important information is NOT indicated by the financial statements?

Answer 1

Solution:

Three types of financial statements are- Balance sheet, Cash flow statement and Income statement. Though these statements provide various information regarding the financial positions, but there are various information that are still missing and these are-

Quantitative

1. These are based on the historical cost while the fair value or market value could be different

2. Balance sheet are as on the date while it is possible that the value may change

3. Inflationary effects are not taken

4. Intangible assets are not recorded in these statements

Qualitative

1. These statements are not always comparable across companies due to different ways of treatment by various companies

2. Quality of earnings can not be found from the statements

3. Management efficiency can not be found on these statements