What is the Balanced Scorecard?
Kyle Ashcraft, CPA · 2019 CPA Exam Scores · 95 FAR · 98 BEC · 91 REG · 90 AUD
The Balanced Scorecard pushes beyond pure financial analysis, and it's a well-tested topic on the BAR section of the CPA exam.
Why do we need the Balanced Scorecard?
Within accounting, it's easy to focus only on the financial side of a company — ratio analysis, testing balances, and so on. But effectively analyzing a company also requires looking at its non-financial side. A company can look perfectly healthy financially while its customers are unhappy with its products.
The Balanced Scorecard exists to close that gap. It separates a company into four areas: Financial, Customer, Internal Business Processes, and Learning and Growth.
What are the four parts of the Balanced Scorecard?
- Financial — the most familiar piece, analyzing the company from a purely financial perspective (like ratio analysis)
- Customer — analyzing the company through the customer's eyes: How happy are customers with the products? How good is customer retention?
- Internal business processes — how the company operates internally, such as how efficient its internal controls are
- Learning and growth — the company's future: how much it's investing in research and development to stay relevant, rather than just how it's performing today
The Balanced Scorecard forces you to look past the financials. Breaking a company into these four areas lets you check whether it's actually meeting its goals — not just whether its numbers look good today.
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Kyle Ashcraft, CPA scored 90 or above on every section of the CPA exam in 2019, including a 98 on BEC. He is the founder and sole instructor of Maxwell CPA Review, a complete CPA review course covering all six sections, where he creates every lecture, textbook and study outline himself.