Analyse how any one stakeholder group could use both an income statement and a statement of financial position.

Mark scheme

Marking points from the official mark scheme (May/June 2017). The mark or mark type is shown in brackets.

1. [7-8] Good analysis of the use of Income Statements and Statements of financial position by a stakeholder group.
2. [5-6] Some analysis of the use of Income Statements and Statements of financial position by a stakeholder group.
3. [3-4] Some application of Income Statements and/or Statements of financial position to a stakeholder group.
4. [1-2] Understanding of Income Statements and/or Statements of financial position/stakeholders.
5. [0] No creditable content.
6. Answers could include: a review of the contents of Income Statements (cost of sales, gross profit, operating profit, profit for the year, retained earnings) and Statement of financial position (current assets, non-current assets, current liabilities, working capital, net assets, non-current liabilities, reserves and equity).
7. The statements contain important accounting information and assists the following: informs decision-making – knowledge of profit level assists decisions on whether to invest in growth.
8. Helps to monitor progress against targets / plans / budgets.
9. Assists comparisons with previous years' performance.
10. Identifies cash flows, identifies where costs need reducing and reserves increasing.
11. Stakeholder groups (internal and external) such as Managers, Employees, Potential investors, Shareholders, Banks, Government will use these statements to make judgements about the financial strengths and weaknesses of particular businesses:
12. Employees can review the progress of the business.
13. Assists investors to decide to further invest, or not.
14. Government can see if the correct amount of tax has been paid.
15. Suppliers can assess the health of a business.
16. Facilitates comparisons with other companies' results.
17. The quantitative information and measures contained within these statements assists internal and external stakeholders to take a view of the absolute and relative strength of a business.
18. These are metrics so, of course, have their limitations and answers may well question the level of usefulness, referring to some limitations - historic, inaccurate, misleading etc. – these comments could well act as a bridge into the answer to Section (b) of this question.
19. [9-12] Effective evaluation of the view that quantitative information in published accounts does not give a complete picture of business performance.
20. [7-8] Limited evaluation of the view that quantitative information in published accounts does not give a complete picture of business performance.
21. [3-6] Analysis and some application of the view that quantitative information in published accounts gives an incomplete picture of business performance.
22. [1-2] Understanding of qualitative and/or quantitative business performance measurement.
23. [0] No creditable content.
24. Answers may include: discussion of the limitations of quantitative measures of performance as provided in published accounts leading to an incomplete picture of business performance.
25. A focus on the past - not the present or future.
26. Measurement of the metrics can lead to manipulation / window dressing.
27. You only count what can be counted and other information is left out.
28. One of the main reasons that performance information and measures are produced is for a company to learn, change, and improve and quantitative measures may not be sufficient.
29. Quantitative measures may well focus only on internal business activity ignore external issues such as customer levels of satisfaction and competitor positions.
30. It is argued that quantitative information / performance measures need to be complemented with qualitative information (internal and external).
31. The 'balanced scorecard' approach of Kaplan suggests a mixture of quantitative and qualitative KPIs.
32. Qualitative information suggested on the management of human resources (culture, quality of management) on product / service quality, on brand awareness and company profile / reputation as important.
33. You can count money earned, customer transactions, number of patients treated, number of complaints but not so easy to count overall service delivery, organisational culture, intellectual capital, strength of customer relationships ethical / unethical activities.
34. So in addition to counting it is argued that qualitative information using words and pictures reviewing feelings and behaviours will enhance any measure of business performance.
35. Quantitative information and performance measures are important but over-reliance on these can skew any assessment of business performance and give only a partial view.