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Performance Measurement Theory

1160 Words5 Pages

The two basic Financial Theories, the Normative and the Positive account for most of the performance measurement strategies employed by firms to analyze their financial positions and performance. What are these theories and how do they influence the basic measurement systems if the financial world. I have in this report tried to gauge the two basic systems of performance measurement and how they diversify the strategies of measurement. With reference to several scholarly articles I have presented the main differences and uses of these systems and how it can be determined which system to use.

Different corporations have different goals and their performance is based on these goals, other influences on their performances are the …show more content…

It is widely thought to utilize many different methodologies but end up with one precise accounting belief. (Anon., n.d.).

Normative accounting theorists had been anxious to development and construction of accounting principles. Their primary concern has been recognition and measurement issues. There are two important fundamentals of a ‘normative theory: (a) goal assumption, and (b) deduction.’ A theorist may set his own objectives that are not integral to existing accounting practice. (Kabir, n.d.).

Performance Measurement …show more content…

The measurement of this performance is of course related to the achievement of these targets and how they are achieved (Dekker, 2012) However it is also asserted that ‘professional accountability is not enhanced if the financial reporting standards allow a lot of choices, disparity and analysis, mainly in asset values’. Measurement systems need more transparency but care should be taken that they rely on a more rigid framework. The normative accounting theory is applicable to these systems since it tries to, make a framework or a norm towards which actual standards should strive. It is widely recorded and documented how and why organizations need to align their performance measurement systems with their tactical objectives (Kaplan, 1983). The most prevalent of these is the balanced scorecard which ‘stresses on a balance of the uses of financial and non-financial measures to achieve strategic alignment’ (Kaplan, 1992). The popular reputation of this system led to farther research on the approaches for farther evolves systems of

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