You meet your senior, who graduated a year ago, for lunch. Your senior mentions that managerial accounting is not regulated, unlike financial accounting, which is heavily regulated. The income statement, for example, is based on stringent financial accounting standards. Despite this, the income statement does not really measure the performance of a firm, and therefore is of limited use in assessing a firms future prospects. She also opines that the managerial accounting output is more useful to financial analysts. Your senior asks for your views on this matter.

Required:

1. Do you agree with your seniors stance that the statement of financial performance (income statement) is of limited use to financial analysts? You may agree or disagree with this view. You must justify your stance. You must cover at least two weaknesses of the income statement in your answer and indicate whether, in your opinion, these limit the usefulness of the statement for various users.

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2. Do you agree with your seniors opinion that managerial accounting output is more useful for analysts? Note whether the reliance on managerial accounting could pose any problems for analysts.

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(5 + 5 = 10 marks)