Question

Define limitations of accounting.

Answer 1

Answer)

Like many other, accounting is also not a perfect science and it have its own set of limitations. Some of them are provided below:

1) Accounting policies: There are no uniform accounting policies through out the world which makes understanding of other country financial statements difficult to understand and compare.

2) Estimates: In accounting, there will be need of estimating in various areas like depreciation, provisions etc where it is based on personal judgement but most of the time it varies which may make previous year financial statements a bit untrue.

3) Historical in nature: Most of the values appear in Books of accounts are based on past position which will definitely change due to inflation or deflation.

4) Chances of Errors and fraud: Errors may occur in accounting just like in any other fields and even if the such errors are committed willfully it may be or may not be detected as even the Auditor doesn't provide 100% assurance.

5) Qualitative information may be ignored: Accounting provides only quantitative information but necessary qualitative information like market conditions, manpower efficiency, government view etc are not presented in accounting and it is vital as it may effect the quantitative information in accounts.