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Paper 1 Principles and Practices of Accounting Theoretical Framework 1.11
1.10 Limitations of Accounting
Non-Monetary items are not recorded in the accounts. For example, loyalty and skill which
are the most valuable asset of the enterprise are not reflected in the balance sheet.
Users of financial statements are interested in knowing the financial position of the
business in the future and not for the past date. A balance sheet shows the business
position on preparation date, not on past date.
Changes in monetary factors like inflation are being ignored in accounting.
Accounting principles may contradict each other on some occasions.
Some accounting estimates are based on judgements of the accountant. For example,
provision for doubtful debts, method of depreciation adopted, etc.
Non-monetary assets are not considered in financial statement, i.e. human resources. There
is no generally accepted formula for valuation of human resources in monetary value.
Different accounting policies for the treatment of same item add to the probability
of manipulations.
It can be concluded that accounting has the listed limitations and therefore, while
interpreting the financial statements all the factors influencing should be kept it mind
to depict the true picture.
1.11 Role of Accountant in Soceity
Only a handful of a profession in the world is held in high esteem in public eyes, and the
accounting profession is one of them. Goethe had called the accounting profession “the
fairest invention of the human mind”.
An accountant with his education, skills and experience is the best qualified person to
provide multiple services that society needs.
Public Sector Economic
Service
Enterprises Growth
Framing
Industry
Fiscal Policy
Chartered Accountant’s Role
Fig. 1.5 Role of CA in Diverse Fields
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