Question

Identify the limitations of financial statements:
A. Can be biased 
B. Report on stewardship function 
C. Aggregate information 
D. Only interim reports 
E. Basis of fiscal policies 
Choose the correct answer from the options given below:

• A. A, C, B only
• B. A, C, D only
• C. E, A, D only
• D. B, A, C only

Answer 1

The Correct Option is B

In analyzing the limitations of financial statements, it is crucial to understand what these limitations signify:

• Can be biased (A): Financial statements can reflect subjective judgments and estimates, which means they have the potential to be influenced by personal biases or management's intentions, resulting in an uneven representation of the entity's financial health.
• Aggregate information (C): Financial statements summarize data over a period, which can lead to a loss of detailed information. This aggregation might mask important details that stakeholders might need to make informed decisions.
• Only interim reports (D): Financial reports are often produced for specific periods (e.g., quarterly or annually). Interim reports do not provide a comprehensive view of the company's performance over the long term, leading to potential misinterpretations if taken at face value.

To determine the correct limitations listed in the given options, we recognize:

• Option A, C, D only: This option correctly includes "Can be biased", "Aggregate information", and "Only interim reports" as limitations.

Hence, the correct choice is A, C, D only.