Financial Reporting and Budgeting: Goal Congruence Relationship

This report delves into the intricacies of financial reporting and budgeting, exploring the behavioral issues associated with top-down and bottom-up budgeting approaches. It examines the human factors that significantly influence the success of the budgetary process, providing insights into how top management support, the use of budgeted data, and managerial skills impact outcomes. The report also outlines theories and practices aimed at minimizing dysfunctional human responses to budgeting. Furthermore, it discusses the significance of goal congruence within organizations, emphasizing its role in aligning individual efforts with overall organizational objectives. The report clarifies the relationship between budgeting and goal congruence, highlighting how effective budgeting can facilitate the achievement of organizational goals. The report includes training sessions, adoption of suitable techniques and awareness among the top management regarding the budgeting process.

Financial Reporting Standards
1

Table of Contents
INTRODUCTION ..............................................................................................................................3
Question 1............................................................................................................................................3
a. Discussing the behavioural issues which are associated with the top-down and bottom-up
budgeting ........................................................................................................................................3
b. Explaining the human factors that have high level of influence on the success of budgetary
process ............................................................................................................................................4
c. Outlining the theories and practices that attempt to minimize the dysfunctional human
responses to the budgetary process .................................................................................................5
Question 2.............................................................................................................................................6
a. Discussing the significance of the principle of goal congruence within an organizations..........6
b. Explaining the relationship that takes place between the budgeting and goal congruence .......7
CONCLUSION...................................................................................................................................7
REFERENCES.....................................................................................................................................8
2

INTRODUCTION
Budgeting may be defined as a process is undertaken by the firm with the aim to make
optimum use of the financial resources. Such financial plan clearly presents the income or expenses
which are highly associated with the near future. Thus, company needs to undertake budgeting
process which in turn helps in making optimum use of finance. The reason behind this financial
framework provides deeper insight to personnel about spending pattern or criteria. In this regard,
the present report will discuss the issues that are facing by business units in relation to top-down
and bottom-up budgeting. Further, it will develop understanding regarding the various aspects
budgeting and goal congruence.
QUESTION 1
a. Discussing the behavioural issues which are associated with the top-down and bottom-up
budgeting
Top-down budgeting: In this, budget has been prepared by the higher level managers then it
is circulated by them to the lower level. Hence, in top-down budgeting only senior managers have
authority to take decision about budgeting framework.
Bottom-up budgeting: Under this, budgeting process starts with the lower level personnel.
In this, operational level managers decide the money which they need to spend for performing the
different kind of activities. Thereafter, managers send the financial framework to the higher
management for getting approval.
There are several behavioural issues that closely causing the top-down and bottom-up
budgeting process are: Time required: One of the main issues of bottom-up budgeting is that it consumes more
time of the managers. The reason behind this managers primarily prepare their own budgets
by taking into consideration the past framework and doing cost projections. Thereafter,
upper level managers make review of such budget and thereby prepare the final one
(Advantages & Disadvantages of the Bottom-Up Approach, 2016). In this way, it is highly
time consuming process and thereby affects the productivity of firm. Furthermore, if
manager will devote their time in framing the strategies then it results high profit margin.
3

 Lack of expertise: For the preparation of effectual budgeting framework individual must
have proper skills and abilities. Hence, in top-down budgeting if lower level managers do
not have ability to prepare framework then it may result into unrealistic financial
framework (Li, 2010). In this way, expertise of the personnel have high level of impact on
the company's financial framework.
 Inappropriate forecasting: Behavioural issue which is associated with the top-down
budgeting imply for inaccurate forecasting. Moreover, head of each department have better
understanding about the fund which they need to carry out the business activities and
functions. Hence, budget which is prepared by the firm without taking input from the
personnel of respective departments may result into over-funding (Chen and et.al., 2010).
Along with this, such budgeting method also places negative impact on the employee morale
and motivation. The reason behind this, if higher management fails to develop suitable
framework then employees face difficulty in performing their work.
 Along with this, execution cost is very high in the case of top-down budgeting process.
Moreover, in this, higher management conducts meeting to provide information to the
personnel about the manner in which they need to spend money. In this way, expenses of the
workshop and other aspects impose high cost in front of the firm.
b. Explain the human factors that can affect the success of the budgetary process in an
organization; using appropriate examples to illustrate these factors
There are several human factors that have high influence on the success of budgetary
process are as follows: Top management support: On the basis of this aspect level to which top management
accepts budgetary control as a vital process influences the success of budgeting process.
Moreover, higher management who consider budgeting as important process prefer to make
focus on developing a sound financial plan. Besides this, higher managers who are involved
in such process also lays emphasis on controlling the monetary aspect of firm (Epstein and
Jermakowicz, 2010). In this, manager makes comparison of the actual performance with the
standard one with the aim to assess the deviations. In this way, participation of top
4

management is highly required for making the budgeting process more effectual. Use of budgeted data: The way in which top management makes use of budgeted data or
figures have high level of impact on the success of it. Moreover, budgeting framework assist
company in identifying the department which is not performing well. In this, by evaluating
the current level with the predetermined standards company can find out the variances
(Iatridis and Rouvolis, 2010). It enables firm to take corrective measure within the suitable
time frame and thereby makes contribution in the attainment of organizational goals and
objectives. Along with this, by using such data manager can also set targets for the near
future.
 Ability to formulate and implement the budget: Effectiveness of budgetary process is
highly influenced from the managers ability in relation to preparing and implement it.
Moreover, if personnel do not have ability in relation to preparing the suitable budget
according to the requirements of each department then it may result into unnecessary use of
fund (Iatridis, 2010). Along with this, if employees of the firm do not have ability in relation
to performing the task according to the budget framework then it negatively affects their
success factor.
 In addition to this, skills of the manager in relation to making assumptions also have high
level of impact on the success of budgeting aspect. Moreover, sometimes manager fails to
analyze the market trend and behaviour in an effectual manner then it may result into
unrealistic framework. Along with this, biasness is one of the main factors which impacts
the budgetary process (Brown, 2011). Moreover, sometimes manager allocates high amount
of fund to the department from which it has personal relations. In this way, all the above
mentioned factors influences the effectiveness of budgeting program or process.
c. Outlining the theories and practices that attempt to minimize the dysfunctional human
responses to the budgetary process
In the present era, budgeting is the key which helps in making optimum utilization of the
resources. The rationale behind this, budget provides deeper insight to the personnel about the
manner in which they need to spend money while performing the business activities and functions.
In this regard, it is highly required for the firm to undertake effectual measures for reducing the
5

dysfunctional human resources towards the budgetary process.
Training session: Business organizations can develop the ability of personnel or managers
in relation to the preparation of budgeting framework by conducting the training sessions or
events. This in turn persuade the managers at each level about the manner through which
they can develop effectual financial framework for the upcoming period (Van Greuning,
Scott and Terblanche, 2011). Hence, by removing all the above mentioned obstacles like
lack of ability etc. business unit can make its budgetary process more effectual.
Adoption of suitable technique: Employees also need to make focus on the adoption of
suitable budgeting technique such as zero base. Moreover, it reduces the possibility in
relation to taking false assumptions to the large extent regarding the budgeting franework.
The reason behind this, by taking the zero base managers can prepare highly realistic and
suitable framework (Aubert and Grudnitski, 2011). Moreover, in this budgeting technique
managers makes focus on identifying the each possible alternative for performing the task.
In this way, it helps in making suitable budget on the basis of highly realistic assumptions.
Awareness among the top management regarding the budgeting process: Dysfunctional
responses of the human to budgeting process can be minimized to the significant level.
Moreover, if higher management of the firm does not have awareness regarding the
significance of budgeting process then it may result into the optimum use of resources
(Agoglia, Doupnik, and Tsakumis, 2011). Along with this, when higher management
continuously makes evaluation of the performance in against to the budgeting framework
then they become able to take significant action within the suitable time frame. In this, by
undertaking the effectual measures within the suitable time frame business unit would
become able to aid in the profit margin of firm.
CONCLUSION
From the above report it has been concluded that top-down approach of budgeting is highly
effectual. Moreover, higher management has better insight regarding the fund which is required by
6

the each department. However, both bottom-up and top-down approach have some issues which
closely influence the effectual execution. Besides this, it can be inferred that skills and abilities of
the personnel are main human factors which closely influence the planning and implementation of
budgeting framework.
QUESTION 2
a. Discussing the significance of the principle of goal congruence within an organizations
It can be stated that the main and one of the most important issues which has been faced by
businesses today. On the basis of this aspect efforts of an employee should be integrated with the
overall goal of an organization. The issue is important because it directly results in creating
obstacles in growth and success of a company. The concept of goal congruence is linked with
integration of individual efforts with overall goal of a business enterprise (Barth and Landsman,
2010). Furthermore, it also lays emphasis on the fact that the objectives can be easily achieved by
breaking down them into different sub sets. Goal congruence has started to play significant role in
organizations because it helps in carrying out overall improvement in performance. Other than this,
it also supports in enhancing the sales volume and profits of a business enterprise.
Goal congruence offers economic benefits to a business enterprise. In this way, such
principle started playing significant role in businesses. Another key benefit associated with the use
of goal congruence is that it results in carrying out frictionless working which is very beneficial and
important for carrying out long term operations. Its use helps companies to develop effective
coordination among all staff member and direct their efforts towards accomplishment of
organizational goals. Besides this, goal congruence also assists employees in getting adequate
opportunities for personal and professional growth (Relevance of Goal Congruence and its
Implications to Managers, 2016). However, it can be critically argued that there are certain external
and internal factors which need to be considered while making use of goal congruence. In addition
to this, the concept of goal congruence is highly significant which raises the employee motivation
to the large extent. The reason behind this in which all the members of the organization shares
common goals and objectives. Along with this, it also encourages the personnel to accept the goals
which are setting down by the higher management. Hence, in this goals are communicated by the
higher management to the operational level. Along with this, higher level managers also provide
7

guidance to the personnel about the manner in which they need to perform activities. This in turn
enhances the employee motivation and productivity to the large extent. In this way, the principle of
goal congruence helps company in build or sustain competitive advantage over others.
b. Explain the relationship that exists between budgeting and goal congruence, in terms of an
organisation
There is high level of relationship takes place between the budgeting and goal congruence.
Moreover, principle of goal congruence lays high level of emphasis on developing harmonization
between the multiple objectives of firm. In this regard, by taking into consideration the goals
business enterprise prepares budget at each level (Verbruggen, Christiaens and Milis, 2011). In the
present time, various types of operational budgets are prepared by the firm such as cash, material,
labour, overhead, sales, production etc. All these budgets are highly connected with each other.
Thus, by taking into consideration the objectives of each department company prepares several
types of budget with the aim to make contribution in the attainment of organizational goals and
objectives.
Goal congruence is highly interrelated with the budgeting because it portrays all the
objectives in the mode of financial plan. In goal congruence, business organization divides all the
objectives into subset such as production, marketing, operation, sales etc. On the basis of this
aspect, manager of the firm prepares distinct financial framework. In this way, goal congruence
principle and budgeting framework provides high level of assistance to the company in getting the
desired level of outcome.
CONCLUSION
Further, it also has been articulated that principle of goal congruence helps company in
achieving success. It can be revealed from the report that budgeting process and goal congruence
concept is highly associated with each other. It can be seen in the report that by presenting the goals
in the form of graphs business unit can fulfil the aims and objectives.
8

REFERENCES
Books and Journals
Agoglia, C. P., Doupnik, T. S. and Tsakumis, G. T., 2011. Principles-based versus rules-based
accounting standards: The influence of standard precision and audit committee strength on
financial reporting decisions. The Accounting Review. 86(3). pp.747-767.
Aubert, F. and Grudnitski, G., 2011. The impact and importance of mandatory adoption of
International Financial Reporting Standards in Europe. Journal of international financial
management & accounting. 22(1). pp.1-26.
Barth, M.E. and Landsman, W.R., 2010. How did financial reporting contribute to the financial
crisis?. European accounting review. 19(3). pp.399-423.
Brown, P., 2011. International Financial Reporting Standards: what are the benefits?. Accounting
and business research. 41(3). pp.269-285.
Chen, H. and et.al., 2010. The role of international financial reporting standards in accounting
quality: Evidence from the European Union. Journal of International Financial
Management & Accounting. 21(3). pp.220-278.
Epstein, B.J. and Jermakowicz, E. K., 2010. WILEY Interpretation and Application of International
Financial Reporting Standards 2010. John Wiley & Sons.
Iatridis, G. and Rouvolis, S., 2010. The post-adoption effects of the implementation of International
Financial Reporting Standards in Greece.Journal of international accounting, auditing and
taxation. 19(1). pp.55-65.
Iatridis, G., 2010. International Financial Reporting Standards and the quality of financial
statement information. International Review of Financial Analysis. 19(3). pp.193-204.
Li, S., 2010. Does mandatory adoption of International Financial Reporting Standards in the
European Union reduce the cost of equity capital?. The accounting review. 85(2). pp.607-
636.
Van Greuning, H., Scott, D. and Terblanche, S., 2011. International financial reporting standards:
a practical guide. World Bank Publications.
Verbruggen, S., Christiaens, J. and Milis, K., 2011. Can resource dependence and coercive
isomorphism explain nonprofit organizations’ compliance with reporting standards?. Nonprofit and
9

Voluntary Sector Quarterly. 40(1). pp.5-32.
Online
Advantages & Disadvantages of the Bottom-Up Approach. 2016. Online. Available through:
<http://www.ehow.com/info_8541160_advantages-disadvantages-bottomup-approach.html>.
[Accessed on 14th November 2016].
Relevance of Goal Congruence and its Implications to Managers. 2016. Online. Available through:
<http://www.iiste.org/Journals/index.php/EJBM/article/viewFile/12519/12828>. [Accessed
on 14th November 2016].
10