Relevance and Limitations of Accounting
Limitations of Financial Analysis
From NatSteel's profit and loss statements, the shareholders who sold their shares away were given the impression that NatSteel was not performing up to standards. This shows the limitation of financial statements which reflects basically the financials of a company in the preceding period. The public would often try to estimate the future performance of the company based on this information but there is no guarantee that the company would perform as expected because nobody can predict the uncertainties of the changing world in general.
Importance of Disclosure Principle
NatSteel had better performance during the fourth quarter of 2002, but there was no update given after November. This shows the importance of the disclosure principle, which states that a company's financial statements should report enough information for outsiders to make well-informed decisions about the company. …
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