4.3 Limitations of using Financial or Accounting data to perform Financial Analysis

Accounting data is expressed in terms of monetary value thus any attribute that cannot be expressed in terms of rand value would tend to be ignored
Accounting tries to record highly complex and diverse economic events which results in a loss of some clarity and detail that may have been useful this is because of the need of simplification and summarisation
A proportion of the financial data contained in financial statements is based on subjective and flexible criteria, rather than objective criteria, the subjectivity arises from the estimation and judgment of the accountants who prepare the financial statements, if different accounting policies are used, the financial statements of different firms may not be uniform or comparable
Inflation leads to a decline in purchasing power and so reduces the standard value of the currency and these changes are not necessarily reflected in accounting data