Financial statements suffer from inherent limitations. Primarily, they do not reflect the current situation as they are prepared on the basis of historical cost. Since the purchasing power of money changes, the values of assets and liabilities do not reflect the current market situation, providing historical rather than current information.

Another limitation is bias. These statements are the outcome of recorded facts, conventions, and personal judgements made by accountants. Thus, bias may be observed in the results, and the financial position depicted may not be realistic. Also, they are technical statements understood only by those with accounting knowledge.

Financial statements fail to provide qualitative information. They contain only monetary information and ignore qualitative aspects like industrial relations, labour relations, and employee satisfaction. Moreover, they provide only aggregate information rather than detailed information, which may not sufficiently aid users in decision-making.

Additionally, vital information is often missing. The Balance Sheet does not disclose information like loss of markets or cessation of agreements, which have a vital bearing on the enterprise. They are neither complete nor accurate as income and expenses are segregated using best judgement.

Finally, financial statements are interim reports. The Statement of Profit and Loss does not give an idea about earning capacity over time. The Balance Sheet reflects the position only at a specific point in time, ignoring likely future changes. Hence, proper analysis is needed before decision-making.