Behavioural Aspects of Budgeting and Sequence of the Budgetary Process

This report discusses the behavioural aspects of budgeting and the sequence of the budgetary process. It covers the role of management accounting, relevant issues in budgeting, and provides insights into how budgets can improve overall company performance.

Behavioural aspects of
budgeting and Sequence of
the budgetary process

Table of Contents
INTRODUCTION ..........................................................................................................................1
TASK ..............................................................................................................................................1
Sequence of budgetary process and relevant issues....................................................................1
Budgetary process and its important ..........................................................................................2
Relevant issues in budgetary process .........................................................................................3
CONCLUSION ...............................................................................................................................4
REFERENCES ...............................................................................................................................5

INTRODUCTION
In business environment there is a need of proper gathering, reporting and analysing the
useful information into proper accounts that can be used by internal manager to make certain
valuable decision (Citi, 2013). The systematic process of collecting, posting, evaluating and
making decision to increase the profit margin of company is known as management accounting.
Manager prepare budgets to control their expenses and increase the overall income by focusing
to reduce the possibilities of additional cost expenditure.
In this report, sequence of budgetary process and different issues related with behavioural
aspects of budgeting process are discussed.
TASK
Sequence of budgetary process and relevant issues
In accounting term, a document which is used by the management of company to project
about future expenses and income. It also support manager to effectively measure the actual and
overall performance of company with the estimated plan in a specific time. Budgeting could be
undertaken out by companies or individuals trying to decide how they will keep functioning in
the anticipated income and expenditure (Budgetary process, 2019). Of each fiscal year budget
could be formulated that includes information on the estimated cost of the revenues and value of
expense. There are different types of budgets that are mainly formulated by manager to increase
the profit margin of company.
Role of management accounting
Management accounting enables manager to prepare budget as they can examine the
overall activities of company and define investment in the context of future actions. The have the
main part to formulate the spending plan for entire company unit such as sales, new product,
marketing campaign etc. Management accounting's ultimate benefits come from its ability for
identifying financial trends and predicting future trends. It helps to keep going to the date with
latest market trends, so it can respond in a timely manner and execute tactics that help you to
remain above rivals. In context of planning manager can significantly develop the long term
business regulation and policies when analysing the budgeted information. This would help to
ensure that entire workforce is working according to the set criteria and follow the same track
which will be beneficial in reaching the desired targets of company. Therefore it is stated that the
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main role of management accounting is budgeting like in small companies budgets are consider
as guide for all expenses. So manager use to prepare budgets for every year in order to fix
expenses for every operation and then make decision for future investment. Therefore, a
management accountant can review past records in order to make a reliable estimate of projected
expenses over a year (Singer, 2012). Budget maintains communication between the founder and
his staff in the delivery of all the proposals for the coming year.
Budgetary process and its important
Budgeting is a mechanism by which projected revenue and expenses are calculated to
simplify the process of spending. Budgeting is done to protect control of the costs and receipts.
This functions as a mechanism for tracking and regulating an enterprise's finances. It starts by
agreeing on the budgetary goals whereby the expenditure will be drawn up. Other essential
budgeting practices include issues like planning, tracking, managing and assessing the financial
targets (Hassan, Aslam and Tan, 2012). Budgeting includes the integration of monetary and non
financial preparations to achieve corporate priorities and targets. The cycle of money
management is very critical to any corporation. A company could never keep a record of who it
has gained and how much it has invested, without a clear budget. Throughout fact, the budget
serves as a valuable tool for monitoring how a company invests. A strategy guarantees that all
the funds are spent throughout the correct direction and that budgetary targets are achieved in
future. Budget provides a good guide through which a company can track the revenue stream and
identify potential risks to it in advance. In fact, the budget serves as an useful tool to gain control
about how a organization invests. There is no foolproof system for setting up a proper budget.
Yet manager of company must take careful note of the following conditions that are listed below:
 Top management support: All levels of authority should be aware of the significance of
the budget for the business, and should be assured that the expenditure plan has the
approval of upper management. Therefore, senior management will specify long-range
targets and specific objectives. These priorities and strategies need to be articulated
across the organisation.
 Participation in goal setting: Management utilizes forecasts that demonstrate how it
plans to procure and leverage resources to support the long-range objectives of the
company Workers are more inclined to work for corporate targets if they are involved in
creating them and in budget planning (Cheng, Chen and Shih, 2014.). Sometimes, staff
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provide essential information that might help them develop a practical budget.
Furthermore, because workers are dedicated to meeting corporate objectives, they may be
inspired to execute their own duties under budgetary constraints.
 Communicating results: People must be told of their success quickly and simply. Good
communication means reliability, fair precision and better knowledge. Managers should
convey information quickly so that the output of workers will make the appropriate
changes.
 Flexibility: The proposed annual budget must be reconfirmed if essential assumption
behind the spending program alter throughout the year. In accounting measures, the real
revenues and costs at that stage of activities can be compared with expected results after
the specific level of activities is established.
Relevant issues in budgetary process
Budgeting is linked with a variety of significant problems, including gamesmanship,
unnecessary time needed to develop budgets, and imprecision in budgeting process:
 Inaccuracy: A budget is depends on a number of theories which usually remain not far
from circumstances under which it is made. If there is substantial adjustment to the
corporate environment, performance or expense structure of the organization can change
dramatically so that real results quickly move from budget's projections. This is a specific
problem where the economy unexpectedly crashes, since the budget allows for an
unacceptable amount of investment under an unexpectedly drop in revenues. When
management does not immediately make the schedule, executives keep spending on the
spending plan, thus losing the opportunity for profit. Certain factors may also contribute
to shifts in interest's rate, currency fluctuations and commodities prices that unexpectedly
differ from projected expectations.
 Rigid decision making: The budgeting process centres management team's emphasis
only on planning during budgeting phase at the end of the fiscal year. Any institutional
initiative to update policy remains for the remainder of the year (Gamukin, 2016). There
is therefore no mechanism to systematically monitor and make adjustments, because if
there is a significant change in the industry just after a strategy has been implemented, it
puts an organization at substantial disadvantage with its more flexible rivals.
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 Time required: Particularly in a low structured setting, where many budgetary iterations
might be needed it can also be quite time taking to develop a budget. Unless the
budgeting system is very well planned, workers will be used to the method and the
organization will use budgeting tools, the period is smaller. When business conditions
evolve regularly, the analysis needed could be more detailed, which involves frequent
variations of budget model.
 Gaming the system: An skilled planner can seek to implement budgetary deficits that
will purposely decrease revenue projections and raise cost estimates such that desirable
budget variances will conveniently be accomplished. This could be a significant concern
that requires considerable attention. In fact, anybody who uses gambling is mostly
expected to be immoral, which may contribute to further fraud-related difficulties.
 Only considers financial outcomes: The essence of the expenditure is numerical, and
management focus appears to be focused on the financial dimensions of a company. This
generally means an effort to boost or sustain profitability In fact consumers are not
concerned about a businesses' profit (Healey and Tordoff, 2016). They would purchase
only if they get good quality and well-built goods at reasonable price. Since these
principles are conceptual in substance, it is quite hard to incorporate into budget.
Therefore, the idea of budgeting doesn't actually fulfil consumers' needs.
CONCLUSION
In the end of report, it is concluded that budgets are most crucial part for increasing the
company overall performance in specific time period. The method helps managers to evaluate
how circumstances can shift and what actions they have to take, thus helping managers to realize
how issues can be solved as they occur. This promotes communication of objectives, strategies,
and programs, with each other that help to promote business development. This also guarantees
that suitable persons are held accountable for expenditure implementation.
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REFERENCES
Books and Journals:
Citi, M., 2013. EU budgetary dynamics: incremental or punctuated equilibrium?. Journal of
European Public Policy, 20(8), pp.1157-1173.
Singer, J. D., 2012. Financing international organization: the United Nations budget process.
Springer Science & Business Media.
Hassan, G., Aslam, M. and Tan, Y. S., 2012. Political economy of the budgetary process in
Malaysia.
Cheng, K. C., Chen, T. C. and Shih, N. S., 2014. The Influence of Budgetary Participation by
R&D Managers on Product Innovation Performances: The Effect of Trust, Job
Satisfaction and Information Asymmetry. Asia Pacific Management Review, 19(2).
Gamukin, V. V., 2016. Budgetary risk of inflation. Finansovaya analitika: problemy i
resheniya= Financial Analytics: Science and Experience, 9(14), pp.16-25.
Healey, J. and Tordoff, W. eds., 2016. Votes and Budgets: Comparative Studies in Accountable
Governance in the South. Springer.
Online
Budgetary process. 2019. [Online] Available Through:
<https://corporatefinanceinstitute.com/resources/knowledge/finance/budgeting/>.
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