Performance Measurements Of CIFA and CIMA Accounting Essay



Today, performance measurements contribute to the accurate and adequate assessment and evaluation of the organizational performance. The scope of application of new measurement tools and techniques to maximize the accuracy of the performance measurement grow steadily, while many organizations implement new measurement tools en masse. In actuality, CIFA and CIMA are performance measurement techniques, which focus on key issues related to the performance of organizations. The use of different performance measurement tools contributes to the adequate assessment of the current position of organizations and their competitive environment. However, the effectiveness of traditional performance measurements is under a question. Hence, companies need to implement new, more effective measurements, such as CIMA and CIFA, to conduct accurate and adequate measurements of their performance.

Traditional Performance Measurements

The financial accounting based on the performance measurement is crucial for the business development and improvement of the organizational performance due to the adequate assessment of the current position of the target company. As a rule, companies focus on the measurement of key financial statistics and ratios, such as the level of revenues, net profit, liabilities, and others. Due to the analysis of key financial statistics, the financial accounting can be measured accurately. Otherwise, the risk of the inadequate assessment of the current financial position of a company arises. Hence, the poor assessment of the financial position and performance of the organization can raise many problems. At this point, the risk of the poor forecasting of the financial performance of the organization is one of the gravest problems organizations may face. The proper financial accounting and its measurement lays the foundation to the accurate and reliable forecasting and planning of the financial development of the organization.

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The management accounting focuses on the effective management of the accounting system. In addition, the management accounting based on performance measurement allows revealing the extent, to which the management accounting is effective at the moment. On the other hand, the management accounting has the Limitation of Traditional Performance Measurement and its disadvantages and weaknesses. In fact, traditional performance measurements are grounded on quantitative methods of analysis, which are not always effective. Quantitative methods of analysis do not always allow conducting the adequate assessment of the organizational performance from the qualitative point of view, whereas the quality is crucial in the contemporary business environment. Therefore, modern organizations have to combine both quantitative and qualitative methods of analysis.

Another traditional performance measurement approach is the activity-based costing accounting, which focuses on the analysis and critical evaluation of the activity performance of organizations. This approach focuses on specific activities of organizations and assigns costs to these activities (Rejc, 2004). Costs are assigned to each activity and the effectiveness of activities and effectiveness of investments are measured on the ground of the return on investments and revenues the organization obtains from each activity, taking into consideration costs the organization has spent on the activity. As the matter of fact, this approach is quite effective but it bounds the measurement to specific activities. In such a situation, organizations face substantial difficulties with the adequate assessment of their overall financial performance because they focus on specific activities but not on the organizational performance at large (Boxall & Purcell, 2000). At any rate, costs are assigned to activities regardless of the general strategy of the organizational and business development. In such a situation, the ABC turns to be not very efficient, especially if organizations operate in a rapidly changing business environment. In addition, this method of performance measurement provides organizations with fragmentary information about their performance and organizations need to gather the information collected in terms of the ABC and process it, analyze it to obtain reliable information on their marketing and financial performance. Therefore, this approach is labor- and time-consuming.

Accounting for fixed assets is another traditional performance measurement and approach to accounting. In fact, the accounting for fixed assets focuses on the measurement of fixed assets of organizations, which comprise the core of the marketing value of organizations. On the ground of the measurement of fixed assets and changes in the fixed assets of organizations, the assessment of their marketing and financial performance occurs. This method used to be quite effective in the past, when fixed asset comprised the major part of the marketing value of organizations (Lancer & Holzer, 2001). However, in the contemporary business environment, when organizations operate internationally and, when fixed assets comprised the part but not the main one of the marketing value of organizations, this method is not always reliable (Lancer & Holzer, 2001). In the contemporary business environment, brand and human resources comprise an integral part of the marketing value of organizations but they are not fixed assets. Therefore, modern organizations cannot ignore the value of brand and the potential of human resources, while measuring their performance what is actually the case when accounting for fixed assets occurs. As a result, this method is not applied en masse today, instead new, more advanced and efficient methods of performance measurement are applied.

Modern Performance Measurement

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Modern performance measurements are based on CIMA and focus not only on the quantitative analysis of the organizational performance, but also on the qualitative measurement of the organizational performance. Modern performance measurements contribute to the broad assessment of the organizational performance and effectiveness of operations conducted by an organization.

The high efficiency of modern performance measurements results from the effective assessment of the quantitative and qualitative performance of the organization (Boxall & Purcell, 2000). The quantitative analysis comes first. On the ground of this analysis, an organization assesses its current position in the market. After that, the qualitative analysis accomplishes the measurement and its outcomes are extrapolated on the outcomes of the quantitative analysis to reveal possible problems in the organizational performance.

Modern performance measurements can overcome the limitation of Traditional Performance Measurement (Pollitt & Bouckaert, 2001). To put it more precisely, through the broad scope of the measurement, modern performance measurements outweigh weaknesses of the traditional performance measurement. Modern performance measurements are not bound to the quantitative assessment of the organizational performance but also these measurements involve the detailed qualitative analysis, which helps to identify the full scope of the organizational performance and its effectiveness.

In this regard, modern performance measurements are very effective and contribute to the accurate planning of the organizational performance and its management (Lancer & Holzer, 2001). At this point, the development of effective tools and techniques facilitates the process of measurement and increases the reliability of its outcomes. As a result, modern measurements are more effective than traditional ones.

On the other hand, modern performance measurements systems themselves have weaknesses and limitations because there is always a risk of error, especially, when the qualitative analysis is conducted (Tompkins, 2001). But this problem can be easily eliminated, if the organization expands the scope of the analysis and uses multiple methods of the qualitative analysis.


In the contemporary business environment, the financial analysis affects consistently the performance measurement of organizations because the financial performance of organizations comprises an integral part of their marketing performance. In this regard, the development and implementation of effective tools of the performance measurement focusing on the financial performance of organizations is crucial for the accurate performance measurement and adequate analysis of the organizational performance.

CIFA is another tool that can be used along with or instead of CIMA. In fact, CIFA is grounded on the use of several tools of the performance measurement, which focus on the financial performance of an organization (Behn, 2003). CIFA involves the financial statement as one of the major tools of the measurement of the financial performance of an organization. The financial statement is a formal record of financial activities of an organization, which allows the organization to assess its current financial performance and forecast its prospects in the further business development (Behn, 2003).

Furthermore, income statement is also important for CIFA. The income statement is a financial statement that revenues are transformed into the net income of an organization (Carter, 2003). In fact, the income statement allows an organization to define its income and develop the further plan for the investment. In addition, companies often use net profit as one of the tools of CIFA, which includes the gross profit minus overheads minus interests payable plus/minus one off items for a given period.

Moreover, large organizations, such as multinational corporations, use consolidate financial statement to measure their performance. The consolidate financial statement comprises financial statements of the parent company and its subsidiaries (Rejc, 2004). In addition, organizations use the analysis of cash inflow and outflow to analyze their current financial position and to measure their performance.

Furthermore, balanced scorecards accounting is another performance measurement tool, which allows organizations to measure their financial performance. At this point, it is important to place emphasis on the fact that organizations can use balanced scorecards for the assessment of their financial performance. For instance, organizations can create balanced scorecards, where they take into consideration key financial characteristics within the set timeline (See App., Table 1). For this purpose, organizations need the balance sheet. In addition, the case study of the target organization may help to conduct adequate analysis using balanced scorecards. The use of the case study and balance scorecards allows organizations to conduct the detailed analysis of the financial performance and, what is more important, to complete the analysis and to measure the effectiveness of their performance.

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At the same time, balanced scorecards are applicable not only in terms of the quantitative analysis but they are also applicable to the qualitative analysis (Tompkins, 2002). For instance, organizations can analyze and measure the effectiveness of their performance in terms of company-customer relationship. In the contemporary business environment, company-customers relationships are crucial because they determine the position of companies in the market and the popularity of their brand. In broader terms, company-customer relationships define the marketing performance of organizations.

In addition, the Economic Value Added is often used by modern organizations to calculate the true economic profit of organizations. In fact, specialists (Littman, 2002) believe that this method is very efficient and reliable method of financial analysis. The economic value added is calculated as net operating profit minus a charge for opportunity cost of the capital invested. As a rule, this method is often applied in investment projects. For instance, when investors want to measure their financial performance of the target organization, they can use the EVA to measure the amount by which earnings exceed or fall short of the required minimum rate of return of shareholders or lenders' comparable risk. EVA can be measured at the divisional level that makes this method of performance measurement flexible. Another example of using EVA is setting organizational goals. At this stage of business development, EVA contributes to the adequate and accurate assessment of the current marketing and financial performance of the organization. On using EVA, organizations can define their basic goals, understand possible minimal risks and expected return on investments. However, specialists (Tompkins, 2002) recommend using EVA in a combination with other performance measurement tools to increase the efficiency and accuracy of measurements. At the same time, specialists (Boxall & Purcell, 2000) point out that modern methods of performance measurement are more efficient and reliable in the contemporary business environment because they are flexible and allow organizations to conduct both quantitative and qualitative analysis. In addition, modern organizations prefer to conduct the vertical analysis, which allow them to compare their performance to that of their competitors. In contrast, traditional performance measurement tools focus on the horizontal analysis, which allows analyzing the organizational performance in the course of the set timeline.


Thus, the performance measurement plays an important part in the development of modern organizations. The performance measurement can rely on traditional measurements as well as CIFA and CIMA. The latter are more advanced and widely-spread today, due to their higher reliability and efficiency compared to traditional measurements. In fact, CIMA provides the wider scope for the analysis of the position of an organization and measurement of the performance of the organization, whereas CIFA focuses on the financial performance mainly. In such a way, CIFA has certain limitations and a narrower scope compared to CIMA. In this regard, CIMA is more effective as a tool of the performance measurement. In addition, CIMA has a combination of performance measurement tools, which helps to conduct adequate and accurate analysis of the current position of organizations and their performance.


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