Analysing the limitations of financial accounting

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Swift print Ltd is an old well established printing company. It has its head quarters in Harlow, Essex and its printing factory in Leeds. Month end accounts are produced and copied onto a CD and sent it to Leeds for preparing ledger accounts and then again it come back to Harlow by taxi full of 3 boxes of paper. Then it is distributed to departmental managers to produce a summary of their activity for the month. This process of sending CD to Leeds and producing summaries take at least 5 days.

As the new financial controller for Swift Print Ltd:-

Present Procedure

Whole procedure takes 5 days to produce a summary.

As a financial controller I found some inefficiencies of the present system are as follows:-

Collation of accounts at the end of the month, which can be made online or real time as there is internet facilities, if not then intranet facilities are available in this modern time. From doing this Swift Print can reduce their cost as well.

Sending across the captured accounting details via a CD to Printing Station, which can be transmitted by faxing, or scanning mechanism, etc.

The department managers produce the accounts summary sheet after receiving the printed copies from Leeds, which can be rather produced based on the cost codes they have used while capturing the accounting details itself as an end of day process

The entire accounting business process is paper based, which can be made purely online/offline in soft form that will eventually make the entire accounting practice paperless thus saving trees.


Key performance indicators are the key element for organization to achieve its goals.

As far as the key performance indicators are concerned some the identified indicators can be:

Raw Material Usage & Wastage:- here Swift Print Ltd are wasting their resources like petrol, time, days of production, by sending accounts from headquarters to the printing factory.

Production Statistics :-Swift print Ltd has to focus on time and resource that is personnel's and re-materialization of materials.

Accounting Practices:- taking too much time to produce a final month summary, instead they have to keep their book-keeping in one place rather than passing it to different departments of the firm.


Financial control is done to prevent the errors in a financial transactions.

Control procedure help an organization to achieve its objectives.

Individual or a part within the financial system performs the control procedure.

Effective control procedures is possible only when, the work duties are separated between employees performing different control practices.

There are 2 key stages of financial control procedure.:-

Manual transaction control

Automated transaction control.

Manual transaction control:-

This is further divide into 5 types:-

Review of transaction:- this includes, the review of expenses transferred, acceptance of award contract, approval of recharge, approval of whole financial information and payroll system.

Verification of receipt:- reviewing and appraising the report which is received.

Post-transaction review:- reviewing the ledger accounts, reports of card transaction, reports of payroll expenses.

Balance reconciliation:- reconcile monthly summarized accounts to know debtor's account balances. Also reconcile monthly petty cash accounts.

Balance analysis:- reviewing the expenses incurred due to the fluctuation in balances over the whole year.

Automated transaction control:-

This is further divided into 4 types:-

System accessing function:- access the requirement of the password of financial information system.

Data input:- check and format the data or telephone numbers.

Data validation:- to validate the fund, and account code of organization.

Data processing:- summarize and post automatically through system the invoice payment in ledger accounts.

CONCLUSION:- Thus, if the Swift Print Ltd follow the above financial and control procedures to ensure the accuracy of the system.

There are two types of stakeholders (internal and external):-

Internal stakeholders:-

Employees :-workers of all levels in an organization

Management :- those who are managing the organization

Shareholders and owners:- those who owns the business fully or partially

External stakeholders:-

Suppliers:- input of materials to the company

Creditors:- can be customers or other sort

bankers :- for financial transaction for the business

Financial :- status identity for the business like investors

Institutions :- that hold the company

Some are both internal and external

Competitors government and regulatory agencies


Researchers and academicians

Representatives of others interest like brokers ,underwriters etc

Potential shareholders


Limitations of Financial Accounting

.Accounting is based on collective concepts which is followed by some generally accepted principles.. But there exists a lot of principles to apply on any one item. This allows some alternative arrangements with in the framework of those principles.

e.g.:- the closing stock of a business can be evaluated through different methods: like FIFO (First-in- First-out), LIFO (Last-in-First-out), Average Price, Standard Price etc. But we cannot compare the results of them.

Financial accounting does not provide information according to time

This is not a limitation by the use of highly sophisticated software application of financial accounting is used to keep records online and parallel accounts and the balance sheet is readily available almost instantly which are not feasible in manual accounting.

Financial accounting is designed to supply information about the cash flows and other details in the form of statements. These statements are in the form of Balance Sheet and Profit and Loss account for time period which is normally in a year. So the information is at its best of historical interest and only cross check analysis of the past need to be conducted. The business always require information about its financial status at frequent intervals of time for the management to plan and take necessary decisions and if required any adequate corrections.

Financial accounting is actually not allowed to supply information at shorter interval of less than a year as a tradition. With the advancement of computerized accounting now financial accounting can show profit and loss account and balance sheet on a monthly basis which overcomes this limitation. This allows to understand how the business fluctuations coming on every month and can analysis and react to it. Financial accounting is very much get influenced by personal predictions and judgments. But to record certain events, some estimates have to be done which essentially requires personal judgment. We cannot expect accuracy in future estimates as this may lead the objective to suffer.

e.g.:- For determining the amount of depreciation caused every year in the assets and income of the business accounting cannot be accurate but only approximation

Financial accounting does not take into account about important non-monetary details

Financial accounting doesn't give any place for the transactions of non- monetary in nature.

e.g.:-Business possess competition and technical innovations, efficiency of the employees and loyalty in the business, deviations in the value of money in the market etc. are the important aspects where management of the business is highly concerned. But accounting is not tailored to take into consideration of such issues. Thus anyone with financial information is, naturally, are restricted from crucial information which is of non-monetary in nature due to its absence. The advancement of technology gives good accounting software with MIS and CRM which can be a very useful tool to overcome this limitation to an extend..

Financial Accounting does not give analysis in detail

The information provided by the financial accounting actually is a collection of the financial transactions during the duration of a financial year. It also allows studying the overall fluctuations and details of the business information which all required, like the profit, cost and revenue of each and every product. In financial accounting detailed information as a product does not exists.

e.g.:- If business earned a total profit of say, $ 500,000 during the financial year and it sells three different products namely petrol, diesel and mobile oil and wants to know annual profit earned by each of the individual product, financial accounting does not likely to help unless the use of a computerized accounting system that is capable of handling such complex details. Many reports in a computer accounting software explains the details with the help of graphical notations and customized reports according to the requirement of the business to overcome such limitations.

Financial Accounting does not reveal the current value status of the business

In financial accounting, the status of the business as of a particular date is provided by a statement called 'Balance Sheet'. In Balance Sheet the assets are displayed on the basis of entity usages. Thus it is believed that a business has relatively longer life span and is surely expected to continue to exist indefinitely, hence the value of the assets alters according to the market. The identified value of each asset if sold today cannot understand by studying the balance sheet.

Tadk 3-

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Non-financial measures offer four clear advantages over measurement systems based on financial data.

it's a closer link to long-term organizational strategies.

Financial evaluation system focus on the annual or short term performance against accounting yardstick.they don't deal with pogress related to customers requirement

Or competitor.nor other financial objectives like profitability , competitive strategy

2.critics of traditional measure argue that drives

. critics of traditional measures argue that drivers of success in many industries are "intangible assets" such as intellectual capital and customer loyalty, rather than the "hard assets" allowed on to balance sheets. Although it is difficult to quantify intangible assets in financial terms, non-financial data can provide indirect, quantitative indicators of a firm's intangible assets.

3. non-financial measures can be better indicators of future financial performance. Even when the ultimate goal is maximizing financial performance, current financial measures may not capture long-term benefits from decisions made now. Consider, for example, investments in research and development or customer satisfaction programs. Under U.S. accounting rules, research and development expenditures and marketing costs must be charged for in the period they are incurred, so reducing profits. But successful research improves future profits if it can be brought to market.

Similarly, investments in customer satisfaction can improve subsequent economic performance by increasing revenues and loyalty of existing customers, attracting new customers and reducing transaction costs. Non-financial data can provide the missing link between these beneficial activities and financial results by providing forward-looking information on accounting or stock performance. For example, interim research results or customer indices may offer an indication of future cash flows that would not be captured otherwise.

4. the choice of measures should be based on providing information about managerial actions and the level of "noise" in the measures. Noise refers to changes in the performance measure that are beyond the control of the manager or organization, ranging from changes in the economy to luck (good or bad). Managers must be aware of how much success is due to their actions or they will not have the signals they need to maximize their effect on performance. Because many non-financial measures are less susceptible to external noise than accounting measures, their use may improve managers' performance by providing more precise evaluation of their actions. This also lowers the risk imposed on managers when determining pay.