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Contribute to budget planning and production

PO 13 links to Paper F2, Management Accounting, Paper F5, Performance Management, and Paper P5, Advanced Performance Management

Budgeting is a critical process for any organisation, large and small, and in almost every department, whether spending or revenue-generating. And accountants play an important role in planning and producing budgets.

Alongside making reasoned, often complex calculations and informed forecasts to help ensure organisations and departments can effectively plan, budgeting responsibilities may be just as likely to involve communication, negotiation and even conflict resolution.

Effective budget planning starts with supplying sufficient and correct information for creating detailed and accurate budgets and cashflow forecasts, as well as understanding the wider impact of those forecasts. Once budgets have been agreed, they will need to be communicated with stakeholders, from colleagues tracking sales revenues to department heads who authorise expenditure. And when the accounting period is under way, the budgets will need to be kept under review, where necessary updating or adjusting in the context of changes to the organisation or the markets in which it operates.

You will need to call on your knowledge and understanding of performance measurement and management accounting skills to identify, describe, calculate and forecast business costs and revenues and their behaviour, and to plan, monitor, and control the use of business and financial resources.

Examples of relevant activities for demonstrating your competence might include:

  • contributing to budget meetings, from preparation work, such as analysis of relevant figures from previous periods, to follow-up actions, such as chasing data from other teams or delivering new budgetary messages to colleagues
  • devising plans for budget preparation, from analysis of existing information, through taking stock of current circumstances, to collecting data on a timely basis
  • preparing forecasts, balancing the optimism of sales managers with rational, evidence-based calculations, and allowing for sensitivity to sudden or unexpectedly dramatic changes.
     

The next step is to answer the challenge questions for this objective:

  • Describe how you have been involved in budget planning and production.
  • How do your budgeting responsibilities follow on from others? What happens with the work you produce?
  • Who must you communicate with, and what information must you convey? What data must you use, where do you get this from?
  • Explain, having developed the budget, how you have made sure that it has been implemented correctly.
  • Think about instructions or guidelines that need to be provided to end users, and how they will seek clarifications or further help.
  • What steps have you or your team taken to ensure that budgets are monitored appropriately?
  • What would be the impact on your department or organisation if the budgets you supplied were not properly prepared?
  • Consider not just the effects of over-expenditure by spending departments, but also the impact on financial performance, should adherence to incorrect sales budgets result in falling revenues being masked or cash positions being artificially inflated.
  • How might confidence in you and your team be impacted if budgets are ill-prepared? For instance, if department heads observe budgetary constraints – only to discover they were working under false pretences – how would that affect their willingness to cooperate in future, especially if an indirect result was a fall in sales and/or individual sales commissions?

Last updated: 13 Jun 2013