Analysis of the Budgetary Process and Control in Finance

This report provides a comprehensive overview of the budgetary process, beginning with an introduction to its framework and significance in financial management. It details the sequence of the budgetary process, including determining the flow of information (top-down vs. bottom-up approaches), setting goals and measures, gathering historical data, making projections, and circulating the budget. The report also discusses the relevance of budgetary control in the behavioral aspect, highlighting issues such as misinformation, prioritizing cost savings over quality, and inefficient spending across departments. The conclusion emphasizes the importance of effective policies and management in addressing these issues and maximizing the benefits of budgetary control, referencing key elements like information flow and strategic alignment.

Budget

Table of Contents
INTRODUCTION...........................................................................................................................3
TASK...............................................................................................................................................3
Sequence of budgetary process:...................................................................................................3
Issue of relevance in behavioural aspect of budgetary control....................................................5
CONCLUSION................................................................................................................................6
REFERENCES ...............................................................................................................................7

INTRODUCTION
The framework of budget is an endless process comparable to broader process of
financial management (Budgetary process, 2020). This includes identifying objectives and
collecting data; establishing standards and reconciling priorities, developing the schedule;
tracking actual results and assessing variances; modifying spending plan, assumptions, or
objectives; and redefining objectives. Accounting and managing personnel are primarily
responsible for framing budget. Budgeting is needed to keep tracking over costs and receipts.
This appears as a mechanism for tracking and managing an enterprise's funds. It starts by
determining on financial targets under which budget will be drawn up.
This study consists of explanation about sequence of whole budgetary process and
discuss issues regarding relevance within behavioural aspects of it.
TASK
Sequence of budgetary process:
Management accounting is wider aspect which also involve budgetary controlling which
ensures effective reporting of fiscal and monetary information. For establishing adequate
budgetary controls, managers adopt budgetary process. Here in this context following are
sequence of a systematic budgetary process, as follows:
Determining the Flow of Information:
A corporation collects the data required to develop a budget through two ways:
 It consolidates the processes and has upper management setting goals and expectations
for the organization
 It guides individual work divisions and teams to collect the information on their own.
Here former one considered as top-down budgeting approach, while latter is called
bottom-up budgeting approach (Cheng, Chen and Shih, 2014).
Budgets built through bottom-up approach are usually preferable, even if just for the fact
that individual employees and divisions know better about respective departments than
centralised and upper management. Whereas bottom-up budgeting approach needs more time for
execution as well as complicated in managing.
Determining goals and what to measure:

After deciding the flow of information, managers set goals and measures to achieve
goals. Under it managers defines goals and standards as per corporation's current performance
and business scenario. Each business has its own priorities and business aim, thus managers on
the basis such aim and priorities determines the budget gaols. This is major step as the whole
buggery process depends on it. At the time of evaluation and analysis of budget, managers use
these goals for assessing performance.
For instance an organisation is structured in such a manner that every product item is
independent profit centres this means that one in charge of its own production, distribution,
advertising and sales operations entirely separate from the operations of divisions so this is likely
to budget along product-line categories.
And in case corporation is incorporated depending on traditional operations like in
company there is separate sales division which manages all its products throughout different
regions, separate production division which manages all its products belongs to different regions
as well as separate distribution division then it will budget along such lines (Citi, 2013). Here in
this case sales division would be mention as revenue centre, whereas production and distribution
departments would be regarded as cost centres.
Gathering Historic Data:
Once an organization determines how will it classify its operations it switches its focus to
obtaining information about historic performance. First thing to search for past results
information is balance sheet, annual report, and cash-flow statement of the firm's financial
reports, as well as financial ratios are another major source. Historical data provide a strong basis
for setting standards. This step require more consideration on source of data which ultimately
help to enhance the reliability of budgets.
Making Projections:
For company to predict its performances for the upcoming year, is the fourth step in
budgeting process. Just as solid an estimate as the forecasts. Establishing budget estimates could
be a role as straightforward or complex as enterprise does. For example: some organizations
depend on "incremental budgeting approach," where projections are closely related to previous
performance thus are simple to plan for. Many other depends on "zero-based budgeting," where
projections have hardly anything to do with previous performance, making it more complex to

frame while some-other may rely on hybrid approaches or mix of two or more budgeting
approaches.
Circulate budget:
After making projections, manager circulates budgets throughout all the divisions and
departments within organisation for effective formulation of budgeting process. This is the last
step in budgetary process which also involves the continuous review of budget after circulation.
Effective extenuation of entire budgetary process depends on this step (Gamukin, 2016).
Corporations also make several modifications on budget as per organisational and environmental
changes.
Issue of relevance in behavioural aspect of budgetary control.
It is observed that budgeting is mainly performed by companies as a favourable thing
especially for expanding business that requires instant cash flow. However, everything in a
business comes with some sort of issues and challenges, budgeting control brings few in built
problems. Such as the ensuring the information is authentic, making the proper use of data and
determining the correct tool and sources which enables in making the best use of budgets. It is
observed that the manner which is used to prepare budgets that are administered with the impact
on the actual effectiveness that support in reaching the overall goals of company (Hassan, Aslam
and Tan, 2012). This also has several function, in addition to the use of budget to predict the
success of the company for the next year. It could be used as a productivity assessment toward
the performance earmarked against the overall performance of the supervisors. Budgetary control
is the consider to be the most important and very essential phase that benefit in managing the
overall finance of company. But have some common issues that are discussed underneath:
 Misinformation: Manager make misinformation based decisions many times that lead to
negative results to company. If the plan originally developed by manager is packed with
assumptions then manager will be driven by mis-truths included in the statements. They
must be able to even get reliable information of how much you invested in past years and
put forward a budget that shows a balanced picture of how much company is going to
spend in the next year.
 More on saving money rather than quality: In case if the company policy is to puts
money as a savings over the quality of service. This is because the customer comes first
and in case of they are not satisfied then company may lead to losses. If the only priority

of company is to prevents millions of dollars but as a result loses thousands of customers,
then there will be huge risk to entire organization.
 Spending more money with different department: A legislation may require
organizations to spend money on the predetermined goals. When manger continue to use
the overall spending patterns to determine the next year's schedule, it can be too tempting.
As a result is might become waste of time and resources and results deliver to company
could be more decreasing and unexpected (Singer, 2012).
It is also observed that statics schedules and multi-year long term plans create high-level
financial goals and restrictions, but if significant variations arise throughout the year, they will
weaken an enterprise that lacks an efficient system to determine the reasons of these adjustments
and modify budgets and strategy accordingly. Dramatic changes in capital ratios, budgetary
constraints and tactics are unavoidable and unpredictable and at times unstable marketplace.
When material deviations arise throughout the year, an entity that does not have an efficient
system to determine the reasons of those adjustments and modify the strategies and actions
accordingly may faces number of issues. This could even lead to many problems to company in
future such as over utilisation of resources, improper operating expenses. Traditional budgets are
generated on the basis of demands by opposing parties, each explaining their expected expenses
on the basis of their departmental requirements rather than the organization's general priorities. It
is also observed that traditional budgeting do not effectively connect financial investments to
actual consequences so reducing the capability for in detail evaluation and making understand
the real rate of investments in context to any business.
CONCLUSION
From above study report it has been evaluated that budgetary process is significant aspect
of management accounting which help to define organisation's overall objectives and targets.
Management in company is key personnel who perform the entire budgetary process.
Implementing such process is crucial as manages have to determine the relevance of this process.
In the end it is also defined that effective policies are needed to be prepared by the manager of
company that help on removing the actual issues of budgeting control and spending plans are
used with maximum benefit.

REFERENCES
Books and Journals:
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).
Citi, M., 2013. EU budgetary dynamics: incremental or punctuated equilibrium?. Journal of
European Public Policy, 20(8), pp.1157-1173.
Gamukin, V. V., 2016. Budgetary risk of inflation. Finansovaya analitika: problemy i
resheniya= Financial Analytics: Science and Experience, 9(14), pp.16-25.
Hassan, G., Aslam, M. and Tan, Y. S., 2012. Political economy of the budgetary process in
Malaysia.
Singer, J. D., 2012. Financing international organization: the United Nations budget process.
Springer Science & Business Media.
Online
Budgetary process. 2020. [Online] Available Through:
<https://corporatefinanceinstitute.com/resources/knowledge/finance/budgeting/>.