Drawbacks Of Financial Accounting
Drawbacks Of Financial Accounting
Accounting is not at all free from some accompanying limitations. In fact, financial accounting permits some alternative treatments as well. Bookkeeping is generally based on the concepts usually referred to as ‘generally accepted principles’. But there exist more than one principle for the efficient treatment of any one of the items to take place. This permits alternative treatments with in the big framework of generally accepted financial principles. Financial accounting, sometimes, does not provide one with the essential timely information. Actually, it is not at all a limitation when high powered software applications are used to maintain online and concurrent accounts, where the balance sheet will be made available in an instant.
Financial accounting systems are designed in such a way as to supply information in the form of statements called balance sheets and profit and loss accounts, generally for a period of one year. So the information received is said to be of historical interest only, and only the post-mortem analysis of the past figures can be conducted. The whole business requires information given at the right time, at frequent intervals, in order for the management team to plan and take corrective actions. As the tradition goes, financial accounting method is not supposed to bring in relevant financial information in a time interval less than one year. Now, with the advent of computerized accounting soft wares, monthly profit and loss account figures can be known and this will help overcome the existing limitations.
Some are of the opinion that financial accounting statements and reports get influenced by personal judgments. The ‘convention of objectivity’ is respected all over the world in accounting; but, to maintain records of certain events excellent estimates have to be made, which requires informed and intelligent personal judgment. One cannot expect accuracy when it comes to future estimates; and, as a result, objectivity suffers. Financial accounting sometimes ignores some of the very important non-monetary information. But, the interesting fact is that financial accounting does not consider these transactions as something that is non- monetary in nature. As for reference, the intensity and extent of competition faced by the company in business, the latest technical innovations possessed by the organization, the loyalty and efficiency factor of the employees, etc. are some of the important matters the management of the business would get highly interested.
However, accounting is not tailor-made to take note of these kinds of matters. Thus any end user of financial information will, naturally, get deprived of some vital information which is non-monetary in character. Today, good accounting soft wares with MIS and CRM can prove to be of great use for bookkeepers to overcome this limitation, at least partially. Another disadvantage is that financial book-keeping does not provide a very detailed analysis. The information provided is, in reality, just the aggregate of the different financial transactions that have happened during the course of a financial year. In a way, it enables bookkeepers to study the overall results of the business trends, where the information pertains to the cost, revenue and profit of each and every product.