FNSACC503 Manage Budgets and Forecasts – Assessor Guide

Performance Evidence

FNSACC503 Manage Budgets and Forecasts – Assessor Guide Student Id: Student Name: PERFORMANCE EVIDENCE Evidence of the ability to: • prepare, document and present budgets and forecasting estimates that: accurately apply accounting principles and practices follow organisational policy and procedures • monitor budget outcomes periodically. Note: If a specific volume or frequency is not stated, then evidence must be provided at least once. KNOWLEDGE EVIDENCE To complete the unit requirements safely and effectively, the individual must:

Discuss the key purpose and objective of budgets and forecasts, including relevance of milestones and key performance indicators.

Discuss issues relating to ethical considerations for budgetary forecasting and projections to explain the strength of assumptions and forecast reliabilities • describe types and sources of data and information required for budgeting and forecasting • outline a range of expenditure and revenue items relevant to budgeting and forecasting • compare and contrast forecasting techniques • identify the key features of organisational procedures and policy relevant to budgeting and forecasting • identify and explain the key principles and practices of: accrual accounting budgetary control corporate governance double-entry bookkeeping statistical analysis and measures of variance. ASSESSMENT CONDITIONS Assessment must be conducted in a safe environment where evidence gathered demonstrates consistent performance of typical activities experienced in the accounting field of work and include access to: • common office equipment, technology, software and consumables. Assessors must satisfy NVR/AQTF assessor requirements.

ASSESSMENT 1 - PROJECT Total Assessment 1 length should be 800 - 1500 words.

You must accurately reference all of your external sources of information Your task is to create a mock operating budget for any of the following business: • Cleaning service (commercial) • Retail store (clothing) • Insurance sales company • Restaurant Your will need to consider the types of expenses and wages that may be relevant to this type of business. In your task you are required to prepare, forecast estimates and document the budget ensuring you have used an acceptable budget template and that the budget contains all relevant information. Answer Sheet (Expandable)

ASSESSMENT 2 KNOWLEDGE QUESTIONING Total Assessment 2 Length should be 500 - 700 words.

Sheet (Expandable) 1. List the types of budgets you may have to prepare? 2. List the typical budget cycle? 3. Discuss the purpose of each of the following budgets: • Cash budget • Labour budget • Production budget • Materials budget • Overhead budget 4. What are budget negotiation procedures used for? 5. What is a milestone in relation to budgets? 6. What are the steps involved in forecasting estimates? 7. What factors need to be taken into consideration when preparing cash flow estimates? 8. What might a budget spreadsheet report cover? 9. List and describe each type of formatting for budgets? 10. What duties are involved in establishing a timeline for budgets? 11. What formats can trends be reported in? 12. What needs to be considered when monitoring budget outcomes? ASSESSMENT 3 - CASE STUDY Total Assessment 3 Length should be 500 - 700 words You must accurately reference all of your external sources of information After you have completed this activity you will have to hand it in. You may either use the space provided below for your assessment or upload your file in Moodle. Please seek your trainers’ help if there are any issues. Alex your boss wants to improve his financial processes and has asked you to report to him in details how you could monitor budget outcomes in a business environment. Answer Sheet (Expandable)

Performance Evidence

Main objective and performances of budget and forecast:

In the context of management of business, the purpose of budgeting includes the following three activities:

A forecast of income and expenditure –Budgeting helps to provide model of how the business might perform.

Evaluation of decision-making tool

It provides a financial framework for the process of decision-making

A means to monitor organization’s performances

The main objective is to evaluate the actual business performances comparing the forecast business performances within a specified period.

Here the relevant financial performance indicators provide the main financial priorities of the company. This includes profitability, EBITDA, liquidity, and shareholder’s value. These KPI’s needs to be established with the help of historic information to put the present performance level in that context.

Ethical considerations for budgetary forecasting:

The effective budgetary forecasting needs to address many ethical consideration regarding the market condition, Planning/budgeting process, cost control efficiency, decision-makers approach and so on. Normally, a stable market condition is always desirable for effective forecasting. However, financial plan depends on numerous assumptions. For example, in the case of preparation of operating budget of Fusion delight Restaurant, it has been assumed that the business is stable under the economic condition of Australia without major recession. It also assumed that there are no unanticipated changes in the case of restaurant business.

Source of information for budgeting and forecasting:

The required information gathered for budgeting and forecasting are from historical information of business entity’s accounting system, the knowledge of managerial personnel and the  proposed business plan of the company.

Revenue and expenditure items relating to budgeting and forecasting:

Total revenue of the business includes the details of sales revenue. On the other hand, the total expenditure incorporates variable operating costs like office supplies, promotional costs, fixed operating costs like salaries and wages of employees and so on.

Comparison and contrast forecast techniques:

Primarily, there are four types of forecasting methods: Delhi technique, Writing scenario approach, Subjective approach, Time series forecasting.

Delphi technique is used by approaching a series of questionnaires to a group of experts. Based on such questionnaires, the responses are recorded and the researchers are developed a range of opinions regarding the related context. But this method is not reliable because it is completely based on the gathered responses. On the other hand, the forecasters develop several outcomes based on various criteria. The decision-maker is selecting the most likely results. In this approach, scenarios evaluate best, worst and middle options. Subjective forecasting is another approach by which subjective thoughts and feelings have been evaluated and presented (Kosiba, Newhard and Papadopoulos 2015). These are often applied when time constraints prohibit objective forecasts. Therefore, this type of forecasts is not commonly used. Here the most popular technique of forecasting is quantitative forecasting. Normally, the responsible budgeting authorities are used this technique by measuring gathered data over time to understand the trend. For example, Fusion delight restaurant’s telephone expense is budgeted here as $2404 in the fiscal year 2016-17 by using quantitative forecasting technique. The business cycle identifies that the data gradually shifting over time. Now the forecaster evaluates that the actual cost of telephone is $2500. It means that the organisation needs to reduce their telephone expenses, which is more that the projected figure. For gathering information, therefore, different forecasting approaches can be applied as per the demand of the situation.