Question

Assertion (A): Financial Analysis is affected by the personal ability and bias of the analyst.

Reason (R): There is scope for diversity of opinion as to what constitutes shareholders’ equity, debt, assets, profit and so on.

In the context of the above two statements, which option is correct?

Options

• Both Assertion (A) and Reason (R) are correct, but Reason (R) is not the correct explanation for Assertion (A).

• Both Assertion (A) and Reason (R) are correct, and Reason (R) is the correct explanation for Assertion (A).

• Assertion (A) is correct, but Reason (R) is not correct.

• Both Assertion (A) and Reason (R) are not correct.

Answer 1

Both Assertion (A) and Reason (R) are correct, and Reason (R) is the correct explanation for Assertion (A).

Explanation:

Assertion (A) is correct because the final interpretation depends on the skill and judgement of the analyst. Reason (R) perfectly explains this because accounting rules leave room for different opinions on how to classify items like equity, debt, or profits, leading to personal bias.