Q.Give any two standards that can be used by a company to evaluate the performance of its Finance & Accounting department.

Performance Measurement Standards — First Principles

Imagine you're training for a 100-metre sprint. You time yourself every day. One day you run it in 12 seconds, the next in 11.8, then 11.5. You're getting faster — but how much faster? And is 11.5 seconds good?

To answer that, you need a standard — a fixed reference point. Maybe the national record is 10.2 seconds. Maybe your personal best last month was 12.1 seconds. These are standards: they let you compare your performance against something meaningful.

Now replace "sprint" with "a mutual fund" or "a stock portfolio." The same logic applies. You need a benchmark to judge whether the investment is doing well or poorly.

The Intuition

A Performance Measurement Standard is simply a yardstick. It answers the question: "Compared to what?"

Without a standard, a 15% return sounds fantastic. But if the overall market returned 20% in the same period, that 15% is actually a failure — you lost ground relative to the market. Conversely, a 5% return sounds terrible, but if the market fell 10%, you've outperformed.

The standard gives context. It separates absolute performance (raw numbers) from relative performance (how you did versus a benchmark).

The Precise Statement

In finance and investing, the most common standards are:

Why This Matters (Exam-Ready)

Common exam trap: Students confuse "performance measurement" (calculating returns) with "performance measurement standards" (the benchmark used for comparison). They are related but distinct.

A Concrete Example

Suppose Fund A returned 12% last year. The Nifty 50 returned 10%. The average large-cap fund returned 11%.

• Absolute standard: 12% > 0% → good
• Market index standard: 12% > 10% → outperformed the market
• Peer group standard: 12% > 11% → beat the average peer

Now suppose Fund B returned 8% last year. The Nifty fell 5%. The average peer returned 6%. …