Question

You were recently hired as Management Director of the new I can Business Incorporated (ICBI). You have been asked to establish policeis and systems for the business. The first one you choose to work on is a financial reporting system. For this assignment, you must develop a 4-5 page memo that you will deliver to the ICBI Board of Directors. You will describe what a financial reporting system is and explain how the management team at ICBI should use an activity-based budget instead of an operating budget. Be sure to explain the similarities and the differences of the two. Finally, give examplesof the budget guidelines for ICBI. You must answer the following:

Describe the meaning and the compounds of a financial reporting system.  

Answer 1

Operating Budget is the traditional style of budget in which last year’s targets for revenues, expenses and other categories are analysed and increased based on growth forecasts, taking into account economic factors as well as past growth trends for the company and industry. For example, the operating budget includes expected inflation, which is reflected in costs and potentially in revenues if it causes the company to raise prices.

Unlike traditional budgeting, the activities-based budget analyses opportunities and allocates resources specifically for each activity. Companies choose projects or activities based on company goals, such as attracting new customers or entering a new line of business, then allocate spending by prioritizing activities. This process may work from previous company history or proceed from scratch. Starting fresh every year, often called zero-based budgeting, requires each unit to justify its place in the budget annually.