Question

In a essay format, answer the following:

• Explain the importance of planning, budgeting and control on resource management and value creation.
• Explain the challenges that senior executives and management accountants face in today’s business world, which has impact on the budget preparation process.
• Identify and explain the challenges and uncertainties the management accountants may expect to face in the future while preparing budgets.
• Explain what management accountants can do to overcome these challenges.
• Discuss the ethical considerations that needs to be managed during budgeting process.

Answer 1

1} Importance of planning, budgeting and control on resource management and value creation

The key benefit of business planning is that it allows you to create a focus for the direction of your business and provides targets that will help your business grow. It will also give you the opportunity to stand back and review your performance and the factors affecting your business. Business planning can give you:

• a greater ability to make continuous improvements and anticipate problems
• sound financial information on which to base decisions
• improved clarity and focus
• a greater confidence in your decision-making

A budget is a plan to:

• control your finances
• ensure you can continue to fund your current commitments
• enable you to make confident financial decisions and meet your objectives
• ensure you have enough money for your future projects

It outlines what you will spend your money on and how that spending will be financed. However, it is not a forecast. A forecast is a prediction of the future whereas a budget is a planned outcome of the future - defined by your plan that your business wants to achieve

There are a number of benefits of drawing up a business budget, including being better able to:

• manage your money effectively
• allocate appropriate resources to projects
• monitor performance
• meet your objectives
• improve decision-making
• identify problems before they occur - such as the need to raise finance or cash flow difficulties
• plan for the future
• increase staff motivation

2} challenges that senior executives and management accountants face in today’s business world, which has impact on the budget preparation process

• Inaccuracy
• Rigid decision making
• Time required
• Gaming the system
• Blame for outcomes
• Expense allocations
• Only considers financial outcomes
• The larger a business becomes, the more challenging it is to pull in the right information
• You don't have the right tools
• Budgeting takes time, and time is money
• A budget is only as useful as you make it

3} Challenges and uncertainties the management accountants may expect to face in the future while preparing budgets.

• Time Frame

Management accounting does not rely on individual accounting periods when recording financial information. It is a continuous accounting process that must be properly managed by owners and employees. Financial information should be carefully separated to ensure that only timely, valid and relevant information is included on management reports. This process can involve the creation of internal management accounting policies that employees must follow when reporting information to the owners.

• Considerations

Owners should consider implementing business technology software as part of the management accounting process. Specialty software captures financial transactions electronically and sends it to individuals responsible for interpreting the information. Owners also can create financial reports so that the software automatically creates financial reports. Using business software can shorten the amount of time spent preparing financial reports. However, it forces management accountants to be responsible for reviewing the information to ensure its accuracy.

• Expert Insight

Public accounting firms and professional accountants offer small business owners several important resources when setting up a management accounting process. Professional accountants can outline the specific management accounting challenges for the company. These accountants also can work with owners to create specific responsibilities that management accountants should follow. This professional advice ensures that owners capture all necessary financial information for future decisions.

• changing enviorment

Management accounting profession should adapt to the recent changes in order to be relevant and competitive in the near future. Generally, there are several factors that may influence the transformation to the current state of the management accounting profession. Environmental Factors: Environmental factors are also known as external factors. For example, rapid changes in business environment such as globalization of markets, intensifying competition and advances in information and production technologies

Organizational Factors: organizational factors can be described as organization, strategy, products, perceived uncertainty and competition. This is one component of internal operations as organizational factors may influence directly to the day-to-day operations. Organizational factors emphasis on core competencies, customer and supplier relationships, downsizing, outsourcing, flatter organizational structures and team work.

4} The ethical considerations that needs to be managed during budgeting process

A} Honesty:

Honesty is an ethical principle at the heart of the budgeting process. If the numbers you crunch don't correspond with your actual business activities, then it is unlikely that your budget will reflect genuine ethical priorities. If your financial processes are clear, accurate and transparent, they will provide you with the tools and information necessary to determine the best way to allocate your resources in ways that are consistent with your company's values. In contrast, fudged numbers are usually the basis for dishonesty and fraud.

B} Responsibility

An ethical business organizes its financial house in ways that reflect a deep understanding of the company's responsibility to a range of stakeholders, from its employees to its community to the environment. Many business budgeting decisions involve choices between thoughtfully dealing with the consequences of company policies and earning extra money by cutting corners. For example, a business that bases its profitability on paying wages that don't allow workers to adequate support themselves costs the community when these workers are forced to rely on public assistance.

C} Decency

Businesses are run by people, and they sustain themselves financially by meeting the needs of the people who are their customers. Although the stereotype of a traditional business reflects an organization geared toward making money at the expense of basic humanity and decency, ethical companies actually build their bottom lines on principles of kindness and mutual gain. Ethical budgeting is built on the assumption that treating people well is worth the money that it costs and ultimately pays for itself by earning the loyalty of employees and customers.

D} Conflicts of Interest

Ethical business budgeting steers clear of situations that involve conflicts of interest that can lead to dishonest accounting and improper allocation of resources. A manager who is also a stakeholder with a major vendor may opt to skew the budgeting process to direct a disproportionate share of the company's purchasing revenue toward his own endeavor. Similarly, corporate officers who earn tremendous bonuses based on company profits may prioritize profit over ethical considerations. Ethical budgeting involves giving decision-making power primarily to people whose financial priorities are honest and clear.