Reference no: EM13674061

Consolidated financial statements are required by GAAP in certain circumstances. This information can be very useful to stockholders and creditors. Yet, there are limitations to these financial statements for which the users must be aware. What are at least three (3) limitations of consolidated financial statements?
n Limitations to consolidated financial statements include:
1) The operating results and financial position of individual companies included in the consolidation are not disclosed. Therefore, the poor performance or position of one or more companies may be hidden by the good performance and position of others.
2) The consolidated statements include the subsidiary's assets, not all assets shown are available to dividend distributions of the parent company.
3) Financial ratios are based upon the aggregated consolidated information; therefore, these ratios may not be representative of any single company in the consolidation, including the parent.
4) Similar accounts of different companies that are consolidated may not be entirely comparable. For example, the length of operating cycles of different subsidiaries may vary, causing receivables of similar length to be classified differently.
5) Additional information about individual companies or groups of companies that have been consolidated may be necessary for fair presentation, resulting in voluminous footnote disclosures.