Question

You were recently hired as Management Director of the new I Can Business Incorporated (ICBI). You have been asked to establish policies and systems for the business. The first one you choose to work on is a financial reporting system.

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 examples of budget guidelines for ICBI. You must answer the following:

• Describe the meaning and the components of a financial reporting system.
• Explain the budget process.
• Describe a budget contingency plan.

Answer 1

Financial Reporting

Disclosing the financial performance and position of a company to its stakeholders. The various stakeholders of a company are Creditors, investors, debtors, government. For performing Financial reporting, the government & Institute of Chartered Accountants of India has established accounting standards. This standard ensures, unity across the financial statements prepared across various industries and helps in comparison of reports.

The components of Financial reporting are

1. The Financial statements

The financial statement includes Balance sheet, Profit & Loss statements, Cash flow statements, statement of changes in stock & equity

2. Financial statement notes
3. Annual & Quarterly reports – Listed companies
4. Prospectus
5. Management Decision and analysis report

Budget Process

Budget is a planning tool. It helps to plan future business by establishing operational goals.

The steps in Budget process are

1. Preparation
2. Approval
3. Execution
4. Evaluation

Budget Contingency Plan

The budget contingency plan is means planning a budget keeping in my unexpected cost that might arise during the course of business. This means a reserve is kept meeting unexpected cost that might or might not happen. This involves identifying potential risk and maintaining a reserve to meet the cost of such risks.