Explain what we mean by Financial Reporting and what are the limitations of financial reporting.

Below explained briefly what is financial reporting and its limitation:

Interestingly, financial statements ( income statement, balance sheet, cash flow statements, notes to the financial statements) is ONLY PART of financial reporting.

Financial reporting includes not only financial statements but other means of providing and communicating useful information in making business and economic decision. These information relates to the company’s resources, obligations, earnings and others. Corporate annual reports and prospectuses are examples of reports that include financial statements and other financial and non-financial information.

Some of the limitations in financial reporting are as follows:

  • Information provided is primarily about money transaction not on non-financial information like activities, products and others
  • Information often results from approximate measures based on accounting assumptions and conventions
  • Most financial reporting based on historical events which have already occurred

It is important that readers who are provided with financial reports should not solely used them as the only source of information for decision making. The readers need to combined these financial information with information from other sources relating to political events, industry outlook,etc

[ also see  earlier article on limitation of financial statements ]



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