Management accounting plays a key role in the corporate world because it assists in the attainment of organizational objectives. This is because such tool permits companies in taking proper decisions based on their entire resources spent and gained throughout their lifespan. Further, management accountants aid the companies in implementing proper budgeting systems so that they can evaluate whether goals are attained or not. This is the reason why budgeting has been regarded as an important tool for companies. Moreover, in relation to management accountancy, the task of budgeting is considered as the most crucial task that must be undertaken by them for the enhancement of organizational effectiveness.
In management accountancy, the primary responsibility of accountants is to handle the budgets of companies that can facilitate in determining whether organizational objectives are attained or not. Thus, it can be said that management accounting is the key player in the implementation of budgets within companies. Besides, management accounting and budgeting serves equivalent purposes for companies so that they can enhance their overall efficiency on a whole (Brown, Fisher, Peffer & Sprinkle, 2017). On one hand, management accountants supervise the budgeting control that can allow them in making effective decisions. Similarly, on the other hand, if such budgets are effectively implemented by the accountants, they can help the company thrive in the international as well as domestic markets. Nevertheless, planning serves as a major tool in relation to budget implementation and every plan must be evaluated to ascertain whether it is able to trace significant risks prevailing within the company or not (Goodstein, 2011). In other words, this highlights the management accountant’s job of implementing budgeting within corporates so that risks can be eradicated and that can enhance overall effectiveness.
Budgeting assists organizations in assessing their performance because the performance of current year can be compared with that of the previous year to arrive at a conclusion. Further, the comparative analysis framed betwixt the budgeted and actual performance assists in reflecting the areas that must be improved. In other words, the efficiency and appropriateness of every task undertaken within the framework of the company can be determined through the adoption of budgeting framework (Goergen & Renneboog, 2011). This means that if any task is not performing properly, budgeting tools can assist in the preparation of corrective actions that can be implemented to get rid of such issues and improves the process on a whole. This can altogether play a crucial role in the attainment of organizational objectives.
Coordination also play a key role in the budgeting task and hence, in the implementation of budget. Moreover, a budget provides aid to the company in becoming aware of the effectiveness that prevails betwixt various segments and departments. This means that organizational goals can be attained if proper coordination is facilitated betwixt every department or segment (Brown, Fisher, Peffer & Sprinkle, 2017). Moreover, better performances will fetch better outcomes to the company and its team on a whole. Furthermore, the performances of an employee working in the company can also be assessed by means of framing proper comparisons betwixt the actual and budgeted outcomes. This can assist the management of the company to determine what areas necessitate quick course of actions and what actions can be undertaken to get rid of such complications or issues (Porter & Norton, 2014). Therefore, the shortcoming can be easily highlighted and appropriate results can be attained on a whole, thereby serving as a major tool in the attainment of organizational goals. Further, the organizations must adopt proper strategies by the means of offering better rewards, bonuses, and remuneration to the people who have performed in a better way or have attained the desired targets (Brown, Fisher, Peffer & Sprinkle, 2017). Besides, this can allow the company in encouraging or motivating their employees or staffs so that they can further function in a manner that can altogether facilitate in the attainment of organizational goals and objectives (Fisher, Peffer & Sprinkle, 2003). In addition to this fact, maximum usage of funds can also be attained by organizations through the implementation of budgeting tools that can pave a path for the usage and allocation of funds in a way that can assist them in attaining proper equilibrium in relation to revenues, costs, and profits on a whole (Leo, 2011). Overall, it is completely reliant o the company to decide how the budgets must be prepared and how these can be used as a tool in the attainment of overall purposes. Besides, if proper comparison betwixt the actual and budgeted performance of companies is not facilitated through budgeting, it cannot result in overall effectiveness (Parrino, Kidwell & Bate, 2012).
The entire budgeting system is primarily dependent on facts and figures that are forecasted in the process to undertake the desired activity and thereafter, conclusions can be drawn for making proper decisions. This has been reflected with the assistance of two articles. Moreover, in relation to budgeting, risks can be easily detected and mitigated by organizations so that future course of actions can be framed (Ross et. al, 2014). Nevertheless, it assists companies in adopting the best possible way for employing their resources. Further, where each cost is depicted by the organization, the requirement for budget implementation also arises (Shim & Siegel, 2009). Moreover, a master budget is also needed so that all expenses can be reported no matter how small or big they are. Nevertheless, the master budget also incorporates all other budgets that enhances its effectiveness.
Budgets also assist in strategy adjustment on the part of companies so that restructuring and improvement processes are easily facilitated. Besides, it can assist in the introduction of newer measures so that the ineffective measures are discarded easily. For example, an organization can easily eradicate its improper sales estimates by boosting strategies and marketing skills. Hence, such measures can assist the company and must be duly accounted for by the companies in adoption of next budgets. Furthermore, the progress of a company can be determined by measures of describing the strategies in relation to the purchase of PPE or machineries in the budgets. Nevertheless, it is the company’s choice to differentiate the reserved resources for developing the funds that are safeguarded for buying additional assets.
In relation to the same, it can be noted that the system of incentives is regarded as the primary segments or aspects for the management so that they can undertake their operations. Further, such system has been primarily reliant on various factors that are very crucial to be accounted for. Besides, the parameters on which an employees’ incentive relies is associated with planning of investments, pricing of products, evaluation of performance, usage of budgeting details, etc. Nevertheless, the effectiveness of the operation of the process of budgeting is a primary outcome of several factors. In addition, there are several reasons that can assist in permitting the management to approve the budgets out of biased or distressed details in the system of accounting. Moreover, the management can reject or approve the budget out of biasness due to their ineffective and unskilled decision-making ability that can serve as a major path in the facilitation of budgeting tool in organizations. Thus, it is suggested for the entire management to assess, analyse, and monitor the information that are appearing to be distressed in their minds (Lawrie, Abdullah, Bragg and Varlet, 2016). Moreover, if these issues are not given due consideration, the organizational performance can be affected on a whole.
Further, if the company adopts an incentive-based system within their framework, the obstacles in the path of implementation of budgets can be easily prevented. Further, group-incentive systems can also help in the assessment of expenses and issues that can be encountered while computing the employees’ performance. This can further allow the company to enhance its effectiveness by encouraging the employees to become engaged in a manner that can improve their respective performances (Lawrie, Abdullah, Bragg and Varlet, 2016). Moreover, it also paves a path in bringing best coordination betwixt the employees that can further assist the entire company in enhancing their performance and attain maximum revenues on a whole. Compensation to the system of budget is also interrelated by the company through continuous and extensive usage of the same. Moreover, absence of proper coordination, communication, and cooperation betwixt the employees is also observable whereas the group budgets are also assessed and evaluated. Hence, the budget-based contracts come out to be effective than the other contracts especially in a group setting is not known.
Furthermore, both subordinates and superior people working in the organization are altogether affected by the process of budgeting. There are various factors that can influence the forecasted budgets and are also associated with one another. The first factor is communication being made by the subordinates to the superior, the second is comparative analysis framed betwixt the forecasted budget and actual outcomes, and methods used by such subordinates for forecasting (Robinson & Last, 2009). Nevertheless, the employees are also required to attain proper training so that they can easily understand and interpret budgeting tools within their organization. Therefore, government must establish proper training programs so that employees can understand the concept of budgeting in a proper way. Besides, activities that have cost segments and long-term measures can be segregated into several annual budgets that must be of assistance in the implementation and incorporation of economical amounts within the organization.
The similarity that can be observed in the articles is that of the budget and its implications. Budget acts as a tool for the measurement of performance and as a result of which an organization can measure its performance effectively. A budget allows an organization to analyse and assess its performance in a given period of time. The budget also acts as a tool for the measurement of the overall success of an organization, its businesses and operations as well during a particular period (Brown, Fisher, Peffer & Sprinkle, 2017).
Further, both the article states that an organization can draw its areas of strengths and weaknesses by drawing comparisons between the results of its estimated performance and actual performance. Once the results are known to the organization the same can be taken as a lesson and implemented in the upcoming budgets so as to eliminate the risks and such other factors that come in the way or hamper the performance and well being of a company. The efficiency and efficacy of each and every activity can be ascertained by means of comparing the actual performance of the organization with the estimated performance (Horngren, 2011). The results that are drawn if projects the inefficiency of the organization in executing its operations then the organization needs to plan and incorporate such measures that allow it to overcome its shortcomings and sustain its existence along with the accomplishment of its targets.
The budget also allows an organization in maximum utilisation of its resources. This is due to the fact that appropriate allocation of such resources can ultimately allow the company to gain momentum and equilibrium in risks, profits and costs (Barnat, 2014).
It is ultimately on an organization on how it designs its budgets and at the same time incorporates it for achieving its targets. It provides a basis of decision making for the management of the organization. This is due to the results that are ascertained by comparing both actual performances and estimated the performance of an organization (Drury, 2011).
The level of coordination prevailing in an organization very much helps in the accomplishment of its targets. Hence coordination is the key element of budgeting. It allows the organization in understanding the effectiveness and level of coordination existing amongst its various segments and departments. If the coordination amongst all the departments and segments is good then the performance of tasks is also likely to be good which will further enhance the performance, results and well being of an organization. In this scenario, it is most likely for a company to achieve its targets.
On the other hand, the article by Brown, Fisher, Peffer & Sprinkle (2017) states that by comparing actual results with the estimated results an organization can easily determine the performance of its employees. It will allow the management of the organization to detect all such feeble areas that need to be focused in order to deal with all its lacking and derive favourable results. Better salaries, bonuses, acknowledgments and rewarding those employees who have met or crossed their targets can be implemented as a strategy by the company. This will encourage the person and they might perform better that can make the organization in accomplishing and surpassing its goals.
On the basis of article – The effect of budget framing and budget-setting process on managerial reporting.
On the basis of article – Budget-based contracts, budget levels, and group performance. Journal of Management Accounting Research
Conclusion
If the budget relies on the decisions of the buyers then the goals of the company can get affected and the senior management of the company shall also get misrepresented. The results of the performance of the company can also be complicated and confusing owing to the variances. Therefore the interpretation of the same shall become difficult for the existing variations that might be because of the decisions that were made on a single budget. This shall also impact the usefulness derived from the budget.The performance of the personnel can be evaluated by the management on the basis of their engagement and contribution in the budgetary processes. This shall provide a basis for the management to reward the personnel of the organization.
References
Barnat, R. (2014) Strategic Management formulation and implementation. Available from: https://www.strategic-control.24xls.com/en205 [Accessed 24 September 2018]
Brown, J. L., Fisher, J. G., Peffer, S. A., & Sprinkle, G. B. (2017). The effect of budget framing and budget-setting process on managerial reporting. Journal of Management Accounting Research, 29(1), 31. Available from: https://search.proquest.com/docview/1967368440?accountid=30552 [Accessed 24 September 2018]
Drury, C. (2011) Cost and management accounting. Andover, Hampshire, UK: South Western Cengage Learning.
Fisher, J. G., Peffer, S. A., & Sprinkle, G. B. (2003). Budget-based contracts, budget levels, and group performance. Journal of Management Accounting Research, 15, 51-74. Available from: https://search.proquest.com/docview/210169229?accountid=30552
Goergen, M. and Renneboog, L. (2011) Managerial compensation. Journal of Corporate Finance. [online]. 17(4), p. 1068–1077. DOI: 10.1016/j.jcorpfin.2011.06.002
Goodstein, E. (2011) Ethics and Economics, Economics and the Environment. Wiley
Horngren, C. (2011) Cost accounting. Frenchs Forest, N.S.W.: Pearson Australia.
Journal of Business and Management. [online]. 6 (11), p. 39–46. Available from: https://www.ccsenet.org/journal/index.php/ijbm/article/view/10247 [Accessed 10 September 2018]
Larry M. W & Christopher J. S. (2012) Managerial and Cost Accounting. Pearson Press
Lawrie, G.V., Abdullah, N.A., Bragg, C. and Varlet, G. (2016) Multi-level strategic alignment within a complex organisation. Journal of Modelling in Management. [online]. 11 (4): p. 889–910.DOI: doi:10.1108/JM2-11-2014-0085
Leo, K. J. (2011) Company Accounting. Boston:McGraw Hill
Parrino, R, Kidwell, D. and Bates, T. (2012) Fundamentals of corporate finance. Hoboken, NJ: Wiley
Porter, G. and Norton, C. (2014) Financial Accounting: The Impact on Decision Maker. Texas: Cengage Learning
Robinson, M. and Last, D. (2009) Budgetary Control Model: The Process of Translation. Accounting, Organization and Society, NY Press
Ross, S., Christensen, M., Drew, M., Bianchi, R., Westerfield, R. And Jordan, B.(2014) Fundamentals of Corporate Finance, 7th ed. North Ryde: McGraw-Hill Australia Pty Ltd.
Shim, J. K & Siegel, J G. (2009) Modern Cost Management and Analysis. Barron’s Education Series
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