The use of financial statements for predicting future earnings and cash flows is limited due to
A)management bias, lack of forward-looking information, and certain inherent limitations.
B)lack of judgment, management bias, and lack of inclusion of inflationary effects.
C)lack of forward and backward-looking information.
D)lack of backward-looking information, the likelihood of management bias, and the omission of historical costs.

Question

Quizplus · Accepted Answer

Financial statements are historical records of a company's past performance and do not provide a complete picture of the future. Additionally, financial statements are subject to management bias and do not always include forward-looking information. There are also inherent limitations, such as the inability to capture intangible assets and market conditions, that limit their usefulness for predicting future earnings and cash flows.

The Use of Financial Statements for Predicting Future Earnings and Cash