Undergraduate accounting: what “critical analysis” really means

1) Critical analysis in accounting: a plain-English definition

In an accounting assignment, critical analysis means you:

1. Identify the issue (what needs attention, what the question is really asking).

2. Use evidence (numbers, ratios, extracts from the scenario, accounting concepts).

3. Explain cause and effect (what drove the result, not just what the result is).

4. Compare alternatives (methods, treatments, decisions, or viewpoints).

5. Question assumptions and limitations (estimates, uncertainty, missing info, bias).

6. Reach a justified conclusion (a decision that follows from your evidence).

So instead of writing:

“The current ratio is 1.4, which is good.”

A critically analytical version would be:

“A current ratio of 1.4 suggests short-term liquidity is acceptable, but the quality of current assets matters. If the ratio is driven mainly by slow-moving inventory rather than cash or receivables, liquidity may be weaker than the headline figure implies. In that case, working-capital management (stock turnover and collection days) becomes a bigger concern than the ratio alone.”

Same ratio. Very different quality of thinking.

2) The difference between description, analysis, and evaluation

Markers often see three “levels” in student work:

Description (what happened)

• States facts or repeats definitions.

• Usually reads like a summary.

Example: “Revenue increased by 12%.”

Analysis (why it happened / what it means)

• Breaks the figure into drivers.

• Links numbers to reasons.

Example: “Revenue increased by 12% mainly due to a price rise (average selling price up 10%) while volume only grew by 2%. This suggests growth is driven more by pricing power than by demand.”

Evaluation (so what / judgement)

• Weighs pros and cons.

• Recognises uncertainty and implications.

• Concludes.

Example: “Price-driven growth is positive if the market accepts the increase, but it may not be sustainable if competitors undercut prices or if customers are price-sensitive. The firm should monitor churn and consider whether margins are improving because of genuine efficiency or simply because volume has fallen in less obvious areas.”

In accounting, evaluation is where your critical voice appears, careful, evidence-led, and fair.

3) What markers mean when they write “needs more critical analysis”

Usually they mean one (or more) of these:

• You reported the figures but didn’t explain the drivers.

• You gave an opinion but didn’t support it.

• You mentioned a concept but didn’t apply it to the scenario.

• You ignored alternative explanations.

• You didn’t discuss limitations (e.g., estimates, one-off items, seasonality).

• You didn’t answer the command word (discuss, evaluate, recommend, justify).

A quick way to fix this is to write with “because”, “however”, and “therefore”.

• Because forces reasons (analysis).

• However forces balance (evaluation).

• Therefore forces a conclusion (judgement).

If you want an official, student-focused explanation of how command words like comment, compare, and conclude push you towards explanation and criticism (not just description), ACCA has a clear guide on “answering the question”.

4) Where critical analysis shows up in undergraduate accounting topics

Critical analysis looks slightly different depending on the module. Here’s how it typically appears:

Financial reporting

You’re often analysing:

• Accounting policy choices (e.g., inventory valuation, depreciation methods).

• Estimates and judgements (impairment, provisions, useful life).

• The effect of policies on profit, assets, and comparability.

What good analysis looks like: not just stating the rule, but discussing why management might prefer a method, what it does to the statements, and how it affects usefulness for users.

Management accounting

You’re analysing:

• Cost behaviour and drivers.

• Variances and what caused them.

• Decision options (make vs buy, special orders, pricing).

What good analysis looks like: moving past calculation to interpretation: what the numbers mean for decisions, and what assumptions could break your conclusion.

Audit and assurance

You’re analysing:

• Risk, evidence, and judgement.

• Whether procedures address the risk.

• The reliability of information.

What good analysis looks like: linking risk to response, and explaining why certain evidence is stronger than others.

Tax and compliance

You’re analysing:

• How facts change treatment.

• Ethical considerations and risk.

• Impacts on cash flow and decisions.

What good analysis looks like: showing you can apply rules sensibly and recognise grey areas.

5) A practical method: the “Claim-Evidence-Reasoning-Limitations-Conclusion” paragraph

When you feel stuck, use this structure. It works for most accounting questions.

1. Claim – your main point

2. Evidence – numbers or scenario facts

3. Reasoning – why the evidence supports your claim

4. Limitations – what could weaken the claim

5. Conclusion – a balanced judgement

Mini example (ratio analysis)

Claim: Liquidity has weakened.
Evidence: Current ratio fell from 1.8 to 1.3; receivables days increased from 45 to 62.
Reasoning: The business is taking longer to collect cash while still funding day-to-day operations, which increases short-term pressure.
Limitations: If sales grew sharply late in the year, receivables may be temporarily higher. Also, the ratio does not show overdraft facilities or seasonality.
Conclusion: On balance, liquidity risk has increased, and the firm should prioritise receivables control and review credit terms.

That is critical analysis: numbers + meaning + judgement + limits.

6) A worked accounting-style example: “Which policy gives a better picture?”

Imagine an assignment scenario like this:

• A company has rising costs and wants to keep profits stable.

• It holds significant inventory.

• Prices fluctuate during the year.

A descriptive approach might say:

“Inventory can be valued using FIFO or weighted average.”

A critical analysis approach asks:

• Which method fits the reality of the business?

• What happens to cost of sales and profit under each method?

• Does the choice affect comparability and decision-making?

Step 1: Show impact (even with simple numbers)

Suppose inventory purchases rose during the year. Under FIFO, older cheaper costs go into cost of sales first, so profit looks higher. Under weighted average, cost of sales is smoother, so profit may look lower than FIFO in an inflationary period.

Step 2: Explain the meaning

• If profits rise mainly because of the accounting method (not because demand improved), the performance story is weaker.

• Investors might think margins improved due to efficiency, when it’s partly a measurement effect.

Step 3: Consider incentives and risks

• Management might prefer FIFO to show stronger profits (better optics, bonuses, loan covenants).

• But this can create credibility risk if users later realise margins were inflated by accounting treatment rather than business improvement.

Step 4: Balance and conclude

A strong conclusion is not “FIFO is best.” It’s more like:

“FIFO can reflect a realistic flow of goods in some retail settings, but in a period of rising input costs it may overstate profit compared with the economic reality. Weighted average may give a more stable and arguably more decision-useful result for planning and pricing. The best choice depends on inventory turnover and whether physical flow aligns with the costing method, but whichever policy is used, the firm should explain the impact clearly so users can compare performance across periods.”

That is critical analysis: not a rule, but a reasoned argument.

7) The “critical” part: challenging your own answer (without being negative)

Students often think critical analysis means “attack the company”. It doesn’t. It means you’re willing to test your own argument.

Use these safe, academic prompts:

• “This suggests… however…”

• “An alternative explanation is…”

• “This conclusion depends on…”

• “A limitation of this analysis is…”

• “On balance…”

What you can challenge in accounting work

• Quality of data: Is it complete? Is it comparable year to year?

• One-off items: Is profit boosted by a non-recurring gain?

• Estimates: Are provisions or impairments sensitive to assumptions?

• Timing: Is performance seasonal?

• Classification: Are costs moved below the line or labelled unusually?

Even one or two well-placed limitations can lift your marks because it shows professional scepticism.

8) How to write it in a way that earns marks (and reads well online)

For an undergraduate assignment (and for a blog that people actually want to read), aim for:

• Short paragraphs (4-6 lines is fine).

• Clear topic sentences (tell the reader what the paragraph will prove).

• Numbers introduced with meaning (don’t drop ratios without context).

• Headings that match search intent (“difference between analysis and evaluation”, “examples”, “common mistakes”).

If you also offer study support on your site, you can place a single internal link naturally (not spammy) like this:

If you want more practical help with your accounting assignment, see our accounting assignment help page.

9) Common mistakes that kill critical analysis (and easy fixes)

Mistake 1: “Definition dumping”

You spend 200 words defining depreciation, then do not apply it.

Fix: define in one sentence, then apply immediately:

• “Depreciation spreads an asset’s cost… In this case…”

Mistake 2: Opinions without support

“This shows poor performance.”

Fix: tie judgement to evidence:

• “This indicates weaker performance because operating margin fell from X to Y while revenue stayed flat.”

Mistake 3: One-sided answers

Only positives or only negatives.

Fix: add one “however” sentence to balance.

Mistake 4: Ignoring the question

You analyse ratios, but the question asked for a recommendation.

Fix: end with a decision:

• “Therefore, I recommend…”