Step 3

Question 1

Step 3

Answer 1

Here are the simplified smart notes:

STEP 03: Identify Benchmark of Most Importance to Users

• Determine the benchmark that is most relevant to the users of the financial statements.
• Consider the focus of the users, such as lenders, investors, or regulators.

Common Benchmarks and Justifications:

1. Profit Before Tax: Listed entities, dividend-paying entities, profit-oriented entities.
2. Revenue: Not-for-profit entities, companies incurring losses.
3. Cash Flow from Operations: Entities with bank financing, where repayment ability is a concern.
4. Expenses: Public sector entities, not-for-profit entities.
5. Net Assets: Unitholders of mutual funds, companies with strategic investments.
6. Total Assets: Highly leveraged entities with assets secured against financing.