• Financial statements are the heart of accounting and they communicate to users about the financial health of an organization. Accountants create the financial statements after the end of the period to report the financial results of that period. Users should recognize that while financial statements are a valuable resource, there are also issues that limit the effectiveness of the statements.
  
  

Outdated Financial Information

• Before an accountant can create the financial statements, all financial transactions must be recorded in the accounting records. Some accounting entries are not recorded until several days after the period has ended. Once the account balances are finalized, the accountant creates the financial statements. From the end of the period to the release of the financial statements, several weeks or months may pass. Users outside the company rely on the information in the financial statements to make investment decisions. However, by the time they see the statements, the information presented is out-of-date.
  
  

Accounting Methods and Estimates

• Several accounting transactions are based on varying accounting methods or estimates. Depreciation, amortization and inventory valuation methods use accountant estimation to create a value for the accounting records. Depreciation and amortization calculations rely on the accountant's estimation of useful lives and future salvage value. Inventory valuation methods rely on the accountant's choice of inventory valuation method. The accounting method chosen by one accountant may be different from the accountant in another company. The estimates used vary from company to company. These variations make it difficult to compare the financial statements from different companies.
  
  

Consolidations

• Companies merge with other companies, and large companies acquire smaller companies. The business environment continually changes and the subsidiary companies included on one company's consolidated financial statements one year may be different subsidiary companies the following year. This eliminates the consistency of information contained in a financial statement from one year to the next. Users of financial statements will compare the financial statements, but the accounting information will be inconsistent.