Budget as an instrument for planning and control

Introduction

Budget is an instrument for planning and control the firm and serves to verify
the performance evaluation of directors and their responsibility to outline
operating and financial projections, constituting a major component of
management control. Through the budget, we can develop a projection for
planning the performance of the firm according to goals to be achieved. We can
also set a standard to perform the analysis between what we have budgeted
and what actually materializes, which helps in the decision process.

Literature

review

Atrill, P. & McLaney, E. (2012) is a good introduction for the theme, as it explain
the basic concepts of management accounting and its relations. For a more
profound analyse of budget, however, it is not recommended.
Thompson, T. & White, V. (2008) says that some of the advantages of the
Budget is to provide criteria for assessing performance; promote
communication and coordination within the organization and the possibility of a
strategic short-term but also long term.
On the other hand, Libby, T. & Lindsay, R. (2010) appoints that the
management control through budget reflects the continuing effort to obtain
information about organizational performance and to evaluate it, providing
important information for the decision process.
Therefore, Direction and efficient coordination of the work of a unit require the
administrator to obtain continuous information on the results of organization's
efforts to achieve their goals. This information forms the basis of a systematic
approach to control.
Application of literature
A critical element of performance monitoring systems is the development of
performance measures. One way to do it is through budgetary accounting
concepts and definitions of organizational activity.
It is also important that there is an accounting system that enables consistent
information and a system of measures of performance standards, without
which the administration can hardly monitor and evaluate the implementation
of its budget.

Several methods can be used to control and evaluate the implementation of

the planned actions, which can be grouped as quantitative and qualitative. The
amounts are usually applied in the direction or supervision of workforce. The
other, based on standards performance previously established are intended to
assess the efficiency and effectiveness of the results of the actions taken by
the entity. All these mechanisms are very useful in management decision
making

Practical application
In my Secs environment we usually dont get closely with budget and decision
making, as we inspect firms and auditors. Our work is more related with
financial accounting. On the other hand, as teacher, it is very important. For
example, last week I prepared a class that was about decision making in
relation with costs. Mastering this issue is very important to me in this area.
Conclusion
Finally, budget is a good instrument for planning, control and measuring of the
firm, serving to help to outline operating and financial projections, constituting
a major component of management control. Lastly, budget is already a good
tool of the entire operational process. If you connect the budget and the
managerial accounting with a strong control mechanism you will have a lot
benefits for the company, including helping the process of decision.

Reference List
Atrill, P. & McLaney, E. (2012) Management accounting for decision makers, 7th
ed. Harlow, England: Pearson Education Ltd.
Libby, T. & Lindsay, R. (2010) Beyond budgeting or budgeting reconsidered: a
survey of North American budgeting practice, Management Accounting
Research, March, 21 (1), pp. 56-75, Business Source Premier [Online]. Available
from:
http://sfxhosted.exlibrisgroup.com.ezproxy.liv.ac.uk/lpu?
title=Management+Accounting+Research&volume=21&issue=1&spage=56&d
ate=2010&issn=&eissn= (Accessed 1 march 2013).
Thompson, T. & White, V. (2008) Management accounting performance
evaluation, Financial Management, Jul/Aug, pp. 57-59, Business Source
Complete
[Online].
Available
from:http://search.ebscohost.com.ezproxy.liv.ac.uk/login.aspx?
direct=true&db=buh&AN=34158047&site=ehost-live&scope=site (Accessed 2
march 2013).