Research on the limitations and countermeasures of financial statement analysis

The financial report does not disclose all the information of the enterprise, and the management has more information, but only a part of it is disclosed There are accounting estimation errors in the disclosed financial information, which is not necessarily an accurate measurement of the real situation The various accounting policy choices of the management may make the financial statements distort the actual situation of the enterprise.

1 Limitations of the financial statements themselves.

According to the requirements of accounting standards, the financial report format is relatively fixed. The financial statements measure and present the complex economic operations of the enterprise in monetary terms, but do not reflect other information that would have a material impact on the enterprise; Secondly, from the perspective of the time of occurrence of information, financial statements can only present the historical financial information that has occurred, and cannot reflect the information that users may need when making decisions. Even if some technical means are used to carry out the future trend, it will be based on the historical information provided in the financial statements, which is only a historical assumption; Thirdly, according to the requirements of the current accounting standards, enterprises of the same nature of economic business can choose different accounting treatment methods according to their actual needs, and can also adopt certain accounting estimation methods.

In this way, there is a certain space for enterprises to manipulate the data of accounting statements and reduce the credibility of financial information.

2 Limitations of financial analysis methods.

At present, the analysis methods of financial statements mainly include comparative analysis, ratio analysis and factor analysis. These analytical methods have certain limitations.

The comparative analysis method has a large limitation on the scope of application. For example, when comparing data within an industry, it is necessary to select businesses of the same and similar nature in the same industry, and at the same time, it is also necessary to meet the conditions of similar or identical scale or operation mode of enterprises. The limitations of the ratio analysis method are mainly manifested in the following aspects:

If the ratio analysis method is used alone, then the conclusions drawn are only the results of the analysis formed by stacking the data indicators; Since these data are historical formations, it is often impossible to judge whether it is sufficient to form a reliable basis for the future financial and operational status of the enterprise. Factor analysis is widely used in practice. However, when using this method, it is necessary to carefully determine the correlation of factor decomposition, pay attention to the order of each factor, and there are certain assumptions in the analysis process.

3 Limitations of the professional quality of financial statement analysts.

The analysis and evaluation of corporate financial statements is a highly professional task, which is usually done by analysts in the financial department of the enterprise. Each financial person is limited to the mastery of professional knowledge, and there are great differences in the understanding and judgment ability of financial statements, and the depth and breadth of the theory and practice of financial analysis methods. These differences in their own professional qualities often lead to slightly different results in the financial analysis and indicator calculations that each analyst derives.

In addition, if the analyst does not fully understand the relationship between the analysis process and the indicators, it is difficult to have a comprehensive description and grasp of the financial and operating conditions of the enterprise based on the calculation results alone.

The financial statements of enterprises are the basis for financial analysis and evaluation, and the limitations of financial statements lead to the limitations of financial analysis and evaluation, and the limitations of financial statements are often manifested in the following aspects.

1) The impact of the professional quality of financial personnel on the quality of financial statements.

The results of the report** are used for the collection, statistics and calculation of basic data of grassroots production departments and other departments. Sometimes, in order to achieve the interests of the department, each department will complete the production indicators stipulated by the company, make false reports and conceal data, coupled with the accounting level of accounting personnel, so that the quality of accounting statements is greatly reduced.

ii) the impact of accounting policies and accounting treatments on the financial statements.

According to the Accounting Standards for Business Enterprises, enterprises are free to choose their accounting policies and accounting treatments. There are different options for the valuation method of enterprise inventory issuance, the depreciation method of fixed assets, the accrual method of bad debts, the external accounting method, and the accounting method of income tax accounting. As a result, even two identical companies will come up with different financial analysis results.

iii) the impact of the existence of accounting estimates on the financial statements.

Due to the existence of accounting estimates in the accounting process, some data in the accounting statements are not very accurate, such as the depreciation life, depreciation rate, and net residual value rate of fixed assets, which contain human subjective estimation factors. Due to the large selectivity of the use of accounting procedures, the comparability of the financial statements of enterprises is poor.

iv) the impact of inflation on the financial statements.

First, inflation affects the reliability of balance sheets. Due to inflation, for monetary assets, when prices are **, their real purchasing power decreases; The opposite is true for physical assets. From the perspective of liabilities, monetary liabilities can bring profits to enterprises when prices rise; Non-monetary liabilities will cause losses to enterprises due to the need to repay them in the future in terms of goods or services.

Second, the inflation of the base ridge also affects the reliability of the income statement. Profit and loss are determined on an accrual basis rather than on a cash basis, so that profit and loss will inevitably be affected by inflation.

5) The results of the preparation of financial statements.

Financial statements usually reflect the operating results of an enterprise in a certain period of time, but cannot specifically reflect the realization process of its economic content.

6) The financial statements lack a certain degree of reliability and validity.

Some of the contents that should be reflected in the financial statements are not effectively reflected, which affects the analysis and evaluation of the enterprise.

Answer]: The limitations of financial statement analysis include the following aspects:

1) Limitations of the financial statements themselves.

Financial statements are a product of accounting, which has specific assumptions and implements uniform specifications. We can only use the data in the financial statements in the prescribed sense, and we cannot think that the statements reveal the whole actual situation of the enterprise.

2) The authenticity of the report.

Financial statement analysis usually assumes that the financial data obtained is true, but this is not always true in practice, and cases of financial fraud occur from time to time.

and 3) the comparability of the different impacts of corporate accounting policies.

Accounting standards allow for the use of several different rules and procedures for the treatment of uniform accounting transactions, which can be chosen by enterprises in a self-repentant manner, and the results are not consistent. This makes it difficult for us to compare and analyze.

4) Compare the basics.

When comparing and analyzing, you need to choose the basis for comparison, which generally includes historical data, peer data, and budget data. However, no matter which one is used as a basis for comparison, it has its own limitations, such as the peer standard, which only represents the average of the peer industry, and is not a sign of reasonableness, and historical data, given that the environment changes over time, the comparison between the data of the current and previous years may not be telling. Shirt source.