Question

What role does the governance board play in regard to the budget? (50-80 words)

Answer 1

Governance Board i.e. management plays a very dominant role with regard to budget. Budget is a plan which is prepared for a financial year. It is estimated income and expenditure prepared by management for achieving desired goal of business. Activities of budget are performed by the employees of company but responsibility to make the budget favorable depends on the management. It is the responsibility of management to create positive work atmosphere in company so that there is nil agency problem or minimum agency problem in company. Agency problem arises due to employee collusion, difference in the views of managers etc. management should give reward or incentives to employees for achieving target budget. This initiative will help the management in future to achieve high growth rate.

Governance board should overview the budget time and time and make requisite changes in budgets due to change in inflation, delay in supplying goods from suppliers, Change in Government policies etc. Governing Board take decision with regard to procurement of capital required for the feasibility of budget. It make no sense to prepare budget if management does not have sufficient capital to finance those budget. So, Governing board decides the sources of capital to be raised with minimum cost of capital.