BUDGETING CHASE HERMIT T. MAGSALIN STUDENT ID NO.

S120202 MANAGEMENT ACCOUNTING 1 Brief Company Background: BDO Alba Romeo and Company (now BDO Philippines) is general professional partnership composed of 14 operating groups (audit, tax, IT, etc.) including Human Resource and Administrative Department (non-profit oriented). The Firm is a member of BDO (BINDER DIJKER OTTE) INTERNATIONAL, one of the largest accounting and consulting organizations in the world with more than 600 offices in over 100 countries. As one of the leading providers of accounting and consulting services in the Philippines, BDO Philippines has over 800 audit clients which operate in all sectors of business activity and ranging from single proprietorship to large multinational companies. The Firm maintains offices in Metro Manila and in the key cities of Bacolod, Cagayan De Oro and Metro Cebu. I have been with the Firm since 2003. I have resigned as a Junior Manager last December 2011. Budgeting and Profit Planning: The Firm has a fiscal year ending September of each year. As early as August, each operating group is required to start on working on its budget by preparing business plan for the next fiscal year. Before the end of October, each group is expected to have finished its group planning and business plan reports. Business plan reports will be revised based on what have been discussed and agreed on the group planning. Revised reports will be submitted to the Managing Partner for review and approval and for consolidation. A strategic planning will be held by the month of November for the whole Firm. After the strategic planning, a revised business plan of the Firm based on what have been agreed in the strategic planning will be officially out for compliance and implementation. The manager of each group is tasked to prepare the required reports with the help of the senior auditors or Supervisor, as the case may be. These reports will then be submitted to the Engagement Partner for his review and approval. Business plan includes the following: 1. Group Profile this includes the current members of the group from the Group Partner down to the Secretary. Usually, each group is composed of the Engagement Partner, Audit Manager, Audit Supervisor (in some cases), Senior Auditors and Junior Auditors. 2. Summary of Chargeable and Non-chargeable Hours this includes the actual hours spent of each member of the group for each client (chargeable and non-chargeable) in prior year and in current year. Included also is the comparison of budgeted hours in the prior year and the actual hours in the current year. We have to provide also the budgeted hours for next year based on prior years and current years experience. Actual hours are derived from our time reports system. The budgeted hours are based on the discretion of the manager as discussed with the senior auditor assigned on the particular client. Hours spent as non-chargeable for administrative purposes (for managers and up) are also included in this report. Any unfavorable variance exceeding 10% on should be explained.

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3. Revenue Profile this includes the actual revenue of the current year as compared to the actual revenue in prior year. Included also is the comparison of the projected revenue in the prior year and in the current year. We have to provide also for the projected revenues for the next year. Actual revenues are based on the monthly/quarterly collection reports. Projected revenues will be based on the 10-20% increase of audit fee for each existing client based on the current fee. Any unfavorable variance exceeding 10% should be explained. 4. Staff Requirement this includes the total effective hours for the group as compared to the total budgeted hours required to achieved the budgeted revenues as presented in numbers 2 and 3. Each member has a standard effective hours, example, junior auditors are expected to have an effective hours of 160 per month or 1,920 per year multiply by the number of junior auditors we have in the group. For senior auditor, the effective hours used is 140 per month or 1,680 per year. If the total budgeted hours exceeded the total effective hours, then additional staff will be hired. 5. Clients Distribution this includes the lists of clients and the senior auditors and junior auditors assigned. 6. Actions to be taken this primarily includes list of plans to be done to achieve the targeted revenue. This also includes promotions, projected resignations and other group plans. 7. Others this includes the group monitoring as to Firms policies like tardiness, absences and others. Any other concerns are also included in this part. Observations and Recommendations, if any: As a Junior Manager, our Engagement Partner assigned all the reports and budget making to me. I have observed that there is no budget prepared for administrative expenses aside from the cost of labor (salaries of auditors), we also need to budget the administrative expenses. Although some of the expenses are fixed like depreciation, utilities and other shared-expenses, there are also expenses that can be controlled like office supplies, transportation and travel, etc. This area should also be considered in budgeting. On staff requirement or cost of services, only the number of hours is considered. For so many years preparing the same reports, I dont remember that we computed the total cost of services or the labor cost. After arriving at the total hours needed to produce the targeted revenue, we should also have to compute for the total cost by multiplying it with the cost per unit. On staff requirement we are using the effective hours based on the prior year reports prepared. As far as I remember, same rate has been used and Im not even sure if it is standard within the Firm since every group has a different format. The rate maybe outdated and must be reassessed or revised considering other factors such as seminars and trainings, implementation of new accounting standards and others which may affect the effective rate of each level of staff. Variances are not seriously taken. These should be considered for improvements. As far as I know, there is no budget committee. I have not known that there are sets of officers that can be consulted upon in case of dispute or misunderstanding or for guidance.

BUDGETING CHASE HERMIT T. MAGSALIN STUDENT ID NO. S120202 MANAGEMENT ACCOUNTING 3