FINANCIAL REPORTING

1
FINANCIAL REPORTING CONTROL SYSTEM BASED UPON
FLEXIBLE BUDGETING

• DESIRABLE ATTRIBUTES OF ACTIVITY MEASURE
• - Exert major influence on activity cost
• - Should be affected by volume only
• - Easily understood
• - Easily obtainable
• - FBA should be based upon output
• DIFFICULTIES ON OBTAINING SUCH A MEASURE
• - Activities are rarely standard/repetitive
• - Output usually diverse
• - Several variables usually cause cost
• THREE SUITABLE MEASURES
• - Standard labour hours of output
• - DLH of input
• - Direct labour costs

2
16.13

• (a)
• Aspiration level - own personal goals
• Budget slack
• Feedback ( feedforward) controls
• ZBB (contrast with incremental)
• Responsibility accounting (also refer to
  behavioural aspects and non-financial measures)
• (b)
• The use of budgets as targets
• e.g. aspiration levels the effect of
  budget levels on performances

3
16.17BEHAVIOURAL ASPECTS IN DESIGN AND OPERATION

• Impact of targets on performance
• Use of accounting control techniques for
  performance evaluation
• Participation in budgeting and standard setting
• Budget bias
• Management use of budgets and role of the
  accountant

4
16.20

• (a) Budgets as targets - high v low, aspiration
  levels, planning v control
• (b) Participation in budgeting standard
  setting
• (c) MBE
• Principles targets performance
  measures communication distinguish fixed,
  variable, controllable uncontrollable
  feedback
• (d) Controllable uncontrollable, dual
  responsibility, dysfunctional consequences,
  influence
• (e) Qualitative measures - quality, delivery
  employee based

5
16.24

• Behavioural v Accounting factors
• Planning v Control
• But still start with quantitative targets
• - target levels
• - aspiration levels
• - conflicting roles
• - participation
• Conclusion
• - does a participative style always work?

6
16.33

• (a) Report should include
• Fixed, Flexible Actual figures
• Flexible v Actual - Price Quantity variances -
  v absolute
• Include cumulative / YTD figures
• Split physical volumes values
• Split controllable and non-controllable costs
• Narrative comments
• (b)
• SC repetitive operations, usually manufacturing
• BC non-standard operations, often
  non-manufacturing

7
16.44

• (a) ISSUES
• Lack of participation
• Controllable v uncontrollable costs
• Flexible budget
• Style of memo use of fixed
• EFFECTS
• Reject the budget
• Negative attitudes - morale, tension
• Style of evaluation - constrained
• Budget becomes God
• Goal congruence
• (b) REDRAFT
• Personalise, offer meeting etc.
• address the issues incorporate qualitative
  measures