LIMITATIONS OF

FINANCIAL
STATEMENT AND
WINDOW DRESSING

PRESENTED BY:
AKANKSHA SINGH
ANOOLEKHA ATRI
ASHISH SHUKLA
MUKESH KUMAR
RICHA MAKIN
CONTENTS
FINANCIAL STATEMENT

LIMITATIONS OF FINANCIAL
STATEMENT

WINDOW DRESSING
WHAT IS FINANCIAL
STATEMENT?
FINANCIAL STATEMENT
EVERY FIRM LIKES TO MEASURE THE PERFORMANCE OF ITS
BUSINESS OPERATIONS IN TERMS OF PROFIT OR LOSS.IT ALSO LIKES
TO KNOW THE VALUE OF ITS ASSETS AND LIABILITIES ON THE
CLOSING DATE OF ACCOUNTING PERIOD.

THUS THE STATEMENT PREPARED TO ASCERTAIN THESE ARE

KNOWN AS FINANCIAL STATEMENT. THEY ARE THE FORMAL
RECORDS OF FINANCIAL ACTIVITIES OF A BUSINESS , PERSON OR
ORGANIZATION.

FINANCIAL STATEMENTS PROVIDE AN OVERVIEW OF A BUSINESS OR

PERSONS’S FINANCIAL CONDITION IN BOTH SHORT AND LONG TERM.
TYPES OF FINANCIAL
STATEMENT

BALANCE SHEET

INCOME STATEMENT
 BALANCE SHEET

It is referred to as statement of financial

position or condition, reports on a company’s
assets and liability and net equity as of a
given point in time.
  INCOME STATEMENTS:
It is referred to as profit and loss statement,
reports on a company’s income, expenses and
profits over a period of time. Profits & loss
account provide information on the operation of
the enterprise. These includes sale and the
various expenses incurred during the processing
state.
LIMITATIONS OF
FINANCIAL
STATEMENT
1. IGNORES QUALITATIVE
ASPECTS

measures only the quantitative facts

of the business in terms of money.

change in managerial position are not

disclosed.
2. BASED UPON
CONVENTION AND
PRACTICE
Financial statements are prepared according to
the practices adopted by individual firms.

Accounting is criticised for its convention of

conservatism
3.IGNORES
HUMAN RESOURCES
Financial statements do not accord any
weightage to human resources.

Doesn’t reveal the non financial items like

efficiency of management, loyalty of work force,
quality of product.
4.IGNORES
PRICE LEVEL
CHANGES
Changes in the price are quite obvious under
inflation and depression but financial
statements ignores it.

Changes are not incorporated in financial

statements.
 5. IGNORES INTEREST OF
ALL CONCERNED
PARTIES
The interest of concerned parties such as ….
Workers, investors, debenture holders, creditors,
stock exchanges ,economists and taxation
authorities is ignored.
6. FAILS TO DISPLAY
PROFITABILITY,EFFICIENCY
AND FINANCIAL SOUNDNESS OF
THE BUSINESS.
Financial statements do not presents the financial
ratios concerning the performance of the business.
7. FAILS TO HIGHLIGHT
THE INFLOW AND
OUTFLOW OF FUNDS
In order to highlight the sources and application
of funds, a firm has to prepare funds flow statement.

As financial statements fail to display it.

THE BUSINESS IS BAD BUT
YOU CAN DRESS IT UP WITH
SOMETHING TO SHOW IT TO
BE HEALTHY- WINDOW
DRESSING
Accounting Data

Account Balancing First Level of

Cooking

Final Cooking
Financial Statement Prep

Window Dressing
AN ADJUSTMENT MADE TO PORTFOLIO OR
FINANCIAL STATEMENT TO CREATE FALSE
APPEARANCE.

IT’S A BAD PRACTICE AND A LIMITATION TO

FINANCIAL STATEMENTS.
‘Window dressing’ refers to attempts by
business to present its accounts in the best
light

Has become more of a necessity as

pressure to please shareholders

It is NOT illegal

Assets are valued at historical cost less an
estimated depreciation

Other possibilities include cost, net

realizable value, replacement cost, price level
adjusted

Not all assets appear

Human capital, internally generated

goodwill

Could be argued that approach is more

conservative
METHODS OF WINDOW
DRESSING
UNLESS YOU HAVE A
CLOSER LOOK ,
ITS IMPOSSIBLE TO GET
RID OF IT.
THANK
YOU