Lecture 4 Ayb321

AYB321 – STRATEGIC MANAGEMENT ACCOUNTING

Lecture 4: Budgeting Systems (Part 1)

• Assignment will be released by the end of the week – will be covered in more depth during next week’s lecture

o Part 1 = budgeting

o Part 2 = organisational architecture

INTRODUCTION

• All organisations have a planning and control system

o Planning = formulating the direction of future options

• All levels of management put in plans

• It is the responsibility of senior management to make an ‘umbrella’ plan for the entire company

o Control = ensuring those plans are achieved

• Make use of diverse resources to ensure plans are achieved

• Planning and control is the fundamental role of management

• Budgeting: detailed plan summarising the financial consequences of an organisation’s operating activities for a specific future time period

o Financial model of future operations

o Core component of an organisation’s planning and control system

o Short term – one year

• Strategic planning: name given to long-term planning by senior management

o Focus on decisions about the type of business and markets as well as financing

o Long term – three or more years

o Strategies adopted have direct implications on the budget

• Corporate strategy: decisions about the types of businesses in which to operate, which businesses to acquire and divest and how best to structure and finance the organisation

• Business strategy: the way the business competes in its chosen market

A Generic Planning and Control Cycle

• The budget can be defined as a detailed plans summarising the financial consequences of an organisation’s operating activities for a future time period

Master Budget

1. Elements of the budget

o Income statement

o Capital budget

o Balance sheet

o Cash flow statement

2. Responsibility over the budget

Roles

• Strategic planning = senior management

• Budgeting and reporting = management accountants

• Remedial action = line managers

o Strategic...