Financial statements disclose a company’s genuine financial status and aid in the formulation of different judgments and policy decisions.
The following factors influence the nature of financial statements:
1. Financial statements reflect data about products at the original purchase price, not the current market price, and do not account for price swings owing to inflation.
2. Financial statements are prepared using a variety of accounting conventions, such as the Prudence convention and the matching idea, and adherence to these conventions results in accounts that are simple to read, compare, and represent the organization’s genuine financial status.
3.Many principles underpin a financial statement, including the going concern concept, realisation concept, and money measurement concept. When financial statements are created, they must comply with all of these notions.
4. Personal judgments play a significant part in the preparation of financial statements. When considering whether to charge depreciation and register stock at market value or cost price, for example. All of this is based on personal opinion.