Planning Tools of Budgetary Control and Their Importance

This project report discusses the planning tools of budgetary control and their importance in management accounting. It covers different types of budgets such as cash flow budgeting, capital budgeting, zero-based budgeting, rolling budget, and operational budget. The report also explores the role of management accounting in resolving financial issues. The case of the Patisserie Valerie scandal is used to highlight the importance of management accounting in detecting and preventing fraud.

MANAGEMENT
ACCOUNTING

Table of Contents
INTRODUCTION...........................................................................................................................3
MAIN BODY...................................................................................................................................3
Question 1. Planning tools of budgetary control and their importance.......................................3
Question 2. Preparation of budgets by help of planning tools.....................................................5
Question 3. Advantages and disadvantages KPI for businesses. ................................................5
Question 4. Role of management accounting profession in order to resolve financial issues.....6
CONCLUSION................................................................................................................................7
REFERENCES................................................................................................................................8

INTRODUCTION
The MA is an accounting system that assess companies day to day transaction including
both monetary and non monetary aspects for preparation of internal reports (Phan, Baird, 2017).
These reports are used by managers of businesses for purpose of taking corrective actions. In the
project report, Toshiba company is chosen in order for understanding in detailed manner. The
project report covers about tools of budgetary control and way through which companies sort out
monetary issue by implementation of management accounting systems (MAS) and planning
tools.
MAIN BODY
Question 1. Planning tools of budgetary control and their importance.
Budgetary control – This can be defined as a systematic process that starts with the
establishing monetary goals of different activities and the assess variation by comparing actual
results. Under this approach, different types of budgets are used in for setting of financial
objectives. Basically, the main purpose of budgetary control is to track the actual variance
between actual result and estimated outcomes. With the help of it, managers can prepare further
plans for enhancing the performance. Different forms of budgetary control are mentioned below
that are as follows :
 Cash flow budgeting – This can be defined as a kind of budget under which a projection
of entire cash receipts and expenses that are expected to be incur in a particular time
period (Yigitbasioglu, 2017). It can be prepared for different time segments such as for
monthly basis, quaternary basis and yearly. Like in the Toshiba company, their managers
are using information through this budget about future need of cash and accordingly
manager source of funds. It has some advantages and disadvantages like :
Advantages – It helps to companies' manager by providing actual data about expected need of
cash for compilation of related activities.
Disadvantages – Due to this budget, managers can not expand cash in different profitable
activities. It is so because this budget limits the spending ability of companies.
 Capital budgeting – It is associated with process of determining efficiency of companies'
highly expensive projects or investments. Such as in the Toshiba company, their

managers take decision about whether they should invest more or not in any particular
project on the basis of this budgeting.
Advantages – By help of this budgeting, managers can assess possible risk and return value of
investments.
Disadvantages – Preparation of this budget is too expensive that can not be afford by all of the
businesses.
 Zero based budget – This is a budget that is based on new activities and avoids past
activities or transactions (Nielsen, 2015). In broad sense, under this budget only those
activities are included that do not match with previous years' budgets. In above Toshiba
company, their accountants prepare this budget for new projects or tasks.
Advantage – It is helpful for new business activities as well as this budget consists very few
chance of errors in estimation of outcomes.
Disadvantage – This budget requires more man power and cost that makes it more expensive.
 Rolling budget – It is a kind of budget which is rolled out as the current years budgeted
period ends. Overall to produce this budget, accountants make some modifications in
current years' budget. The managers of Toshiba company rolls new budget soon after
compilation of an accounting period.
Advantage – This budget is easy to use because it remains same as past years except some
modifications.
Disadvantages- It is not so effective for all businesses because transaction and activities can not
be remain same year by year.
 Operational budget – It is a kind of budget that consists detailed information about total
amount of resources will be required in order to complete different operations. This
budget is prepared in above Toshiba company so that they can estimate about future
needed resourced.
Advantage – It is beneficial for companies in managing future requirement of resources and as
per this managers arrange financial resources.
Disadvantage – This budget is not responsive in the case of too much changes.

Question 2. Preparation of budgets by help of planning tools.
In the business entities, preparation of accurate budgets is an important process which is
prepared by accountants (Cazier, Rego and Wilson, 2015). In order to estimation of possible
outcomes, the accountants of companies use various planning tools like cost accounting, budget
control, pricing strategies and financial statement analysis etc. Each planing tools play a
significant role such as cost accounting helps in providing detailed information about estimated
expenses for a particular time period. Along with budget analysis of financial statements benefits
to accountants in evaluation of current performance and estimating future expected revenues. In
addition, by use of pricing strategies companies can forecast about futuristic sales revenues and
through this sales budget can be prepared with ease by accountants. In the aspect of above
Toshiba company, they are using different planning tools like ZBB, rolling budget and many
more that are helping them in preparation of budget. Thus, as per the above analysis, it can be
stated that planning tools play a critical role in process of budgeting.
Question 3. Advantages and disadvantages KPI for businesses.
KPI (Key performance indicator) – This is also known as performance indicator that is used in
companies for assessment of actual performance. Basically, it evaluates progress of a business
entity of a particular activity of their operations. It can be used by accountants for internal
process because this may guide them in focusing on those activities that are needed to be
improve. Such as in Toshiba company, they can use this approach for management of internal
aspects' progress. It has some advantages and disadvantages that are as follows :
Advantages -
 Rewards – It is helpful for providing reward to those employees who deserve. This
becomes possible because by KPI, every employee gets an opportunity to get reward as
managers assess performance individually. Like in Toshiba company, their staff members
can be rewarded for their actual performance. As well as their managers can trace each
individual's performance.
 Alignment – In the aspect of large business organisations, there are huge number of
employees and this can be difficult to track each ones' performance (De Loo, Cooper,
and Manochin, 2015). By help of KPI, employees get aware that their performance is
being monitored by managers and they try to stay align with organisational goals. Same

as in the above Toshiba company, their employees are aligned with the organisational
goals.
Disadvantage :
 Short term oriented – The KPI approach is not suitable for long term goals because, it
measures performance by considering some common aspects. Basically, there are
different kind of aspects which are needed to be measured. Like the above Toshiba
company can not be relay on this approach for long time period.
 Decrease in quality – This approach focuses on short term goals and due to it employees
may lose their focus from quality of work. Same as in the above Toshiba company, their
employees' quality of work can be decrease if they will majorly focus on short term
objectives.
Question 4. Role of management accounting profession in order to resolve financial issues.
Patisserie Valerie scandal – In this company, problem was created by their accountants as they
manipulated data of financial statements and presented to external stakeholders. Such as the
amount of balance sheet and profit & loss account was wrongly entered (About Patisserie
Valerie scandal, 2019). As well as thousands of false entries done in the ledgers. So overall the
fraud was done by accountants and finance director.
Role of MA profession – On the basis of above case, this can been seen that there are lot of
mistakes which were done by their finance departments. In this aspect, the role of MA profession
could have been beneficial to sort the issues (Stacchezzini, Melloni and Lai, 2016). By help of
management accounting techniques like Benchmarking or financial governance the issue of
above company can be find out. The financial governance could help them in assessing all
financial transaction and major errors. Further, by implementation of effective MAS such as cost
accounting system, job order costing system and many more the management accountant can be
assess the area in which actual financial issue is occurring. Thus, the role of MA profession
could have been crucial in order to solve above company's fraud. In this aspect, it is important to
know that skills of accountant also play a significant role. In the absence of proper skills the
functions and systems of this accounting can not be helpful for companies.

CONCLUSION
On the basis of above project report, this has been articulated that MA can be applied in
companies for multiple purpose. The project report concludes about different forms of budgetary
control such as cash flow budgeting, rolling budget and many more. Along with role of these
budget for preparation of budget is also included in report. The further part of project report
concludes about critical evaluation of KPI and importance of MAS in order to solve financial
issues.

REFERENCES
Books and journals:
Phan, T. N., Baird, K. and Su, S., 2017. The use and effectiveness of environmental management
accounting. Australasian Journal of Environmental Management. 24(4). pp.355-374.
Yigitbasioglu, O .M., 2017. Drivers of management accounting adaptability: the agility
lens. Journal of Accounting & Organizational Change. 13(2). pp.262-281.
Nielsen, S., 2015. The Impact of Business Analytics on Management Accounting. Available at
SSRN 2616363.
Cazier, R., Rego, S., Tian, X. and Wilson, R., 2015. The impact of increased disclosure
requirements and the standardization of accounting practices on earnings management
through the reserve for income taxes. Review of Accounting Studies. 20(1). pp.436-469.
De Loo, I., Cooper, S. and Manochin, M., 2015. Enhancing the transparency of accounting
research: the case of narrative analysis. Qualitative Research in Accounting &
Management. 12(1). pp.34-54.
Stacchezzini, R., Melloni, G. and Lai, A., 2016. Sustainability management and reporting: the
role of integrated reporting for communicating corporate sustainability
management. Journal of Cleaner Production. 136. pp.102-110.
Online :
About Patisserie Valerie scandal, 2019. [online]. Availbale through :
<https://www.bbc.com/news/business-46897543>