Like any other thing in the world, financial reporting also has some limitations. Financial statements or reports:
Aren’t futuristic as the data they provide are from last year and the stakeholders and creditors are more interested in the future position of the firm.
Could be a good measuring tool but no solution to the negative results as despite showing profitability and financial strength of the company they do not advise anything on how a company can improve the numbers and develop the business.
Neglects the changes in the price level especially when the prices of commodities fluctuate oftentimes as the reports are created considering the current rates. Therefore, the results could be misleading.
Don’t consider the qualitative aspects in the accounting process such as inputs received from the human capital of the organisation like their efficiency, technical know-how and profitability.
Can give misleading results in the absence of trustworthy data. Hence, the reports are not completely dependable.
Don’t consider intangible assets and take into account only the expense made to avail the intangible assets like creating a brand image which results in an acute change in the actual reports as compared to the generated ones.