ACC2005 Management Accounting

Organization is accompanied with the several set of activities in which various functions are performed to accomplish long term and short term goals and objectives in long run. In this report, discussion regarding the budget and associated budgetary slaves are discussed. The budgeted revenue is lower than the actual and the projected expenses are higher than the real expenses, than it is considered as a budgetary slack. Budgetary slack is a condition where the underestimation of revenues and over estimation of the expenses has been done for the concerned project.

It is a situation where management has chances to making their benefits, if their bonuses and appraisals are linked to the achievement of the budgeted figures. Sometimes it is intentionally performed by the management for creating their own profits and sometimes it is happened due to the various influencing factors. The organizational factors have a significant influence on the budgeted numbers by the management. A Budgetary slack affects the company in both positive and negative manner. It allows the management to achieve the budgeted goals easily but it also represents the wrong intentions of company’s management for building their own benefits.  This budgetary slack is determined on the basis of internal and external factors which might positively and negatively impact the prepared budget within time (Henderson, 2015).

            While preparing the budget for any specific project or goal, the management of an organization make an over estimation of expenses or under estimation of revenue, so they can easily meet the budgeted goals. It is an unethical practice if it is intentionally done by the management personnel to make benefits or to easily get the goals. Sometimes the management of company performs such kind of practices when they want to show their investors that the business is beating the estimated/expected budget. Management also opt the way of budgetary slack when they want to build their image promissory in the eyes of its investors and among their competitors (Dunk, 2011).

The other reason behind creation of a budgetary slack is the method of budgeting. If the budgeting involves engagement of huge number of employees/staff, it increases the chances of introducing the budgetary slack (Kempers, Ketting, and Lesco, 2014). However, it may be occur itself in some cases. When the results to be expected for future are uncertain, the budgetary slack may occur. This is commonly happened when the planned budget is related to any new product or project, which has no historical/past data for finding possible results.

            Further we will discuss about the influence of organizational factors on budgeting. There are several organizational factors such as ethics, business strategy, business achievements, budgetary participation, budget emphasis, information asymmetry & culture. All these factors have an impact on budgetary slack. An unethical management system has more chances to have an intentionally budgetary slack because the managers of that system are much interested in making their numbers in organization’s achievement. Also the business strategy and achievements affect the budget of an entity (Kyei, Kwaning, and Francis, 2015).

 If an entity pursuing with a sound business strategy then it affects the budgetary slack as the chances to earn higher revenue will increase. On the other hand in case of asymmetry information, the company’s superior management lacks the information about the working environment of the company and is not be able to predict the fair picture of future possibilities and the budgetary slack may occur. Budget emphasis has two aspects out of which one is low-budget emphasis and other one is high-budget emphasis (Daems, 2016).  In low budget emphasis, the management rely upon the non-accounting information instead of considering the previous budgets and results.

And in high budget emphasis the superiors emphasises on the pre-defined budget targets. Including all the discussed factors, budgetary participation is an important factor contributing in the budgetary slack. It refers to the situation where the participation of a large number of employees is involved in the budget (Dos Santos, 2015). If company decides the low and high budget then it will not only hamper the costing of the business but also strengthen the overall outcomes of the business (Vaidya, 2017). It is analyzed that low and high budget is based on the undertaken estimation and assumptions. On the other hand, changing business factors also depends upon the prepared budget.

Conclusion

            At the end of the discussion we can state that excess revenue to the estimated and lower expenses from the budgeted expenses is called as budgetary slack. This is a beneficial situation for the management of an organisation which provide them a chance to earn benefits. It is an ethical practice if it happened due to the organisational factors but if it is done intentionally by the management then it will be considered as an unethical exercise. There are several organizational factors which are contributories to the budgetary slack. To avoid an unethical budgetary slack company should go for zero base budgeting and provide an incentive for their management for prepare an accurate budget. This budgetary salves has assisted in identifying the values and organizational factors.

References

Daems, T., 2016. Slaves and statues: Torture prevention in contemporary Europe. British Journal of Criminology, 57(3), pp.627-643.

Dos Santos, S.A., 2015. Between left and right: Are descendants of slaves in Brazil still Black?. Cultural Dynamics, 27(1), pp.63-80.

Dunk, A.S., 2011. Product innovation, budgetary control, and the financial performance of firms. The British Accounting Review, 43(2), pp.102-111.

Henderson, D.R., 2015. A Philosophical Economist's Case against a Government-Guaranteed Basic Income. The Independent Review, 19(4), pp.489-502.

Kempers, J., Ketting, E. and Lesco, G., 2014. Cost analysis and exploratory cost-effectiveness of youth-friendly sexual and reproductive health services in the Republic of Moldova. BMC health services research, 14(1), p.316.

Kyei, E., Kwaning, O.C. and Francis, D., 2015. Budgets and Budgetary Control as a Management Tool for Ghana Metropolitan Assemblies. Journal of Finance and Accounting, 3(5), pp.159-163.

Vaidya, S.D., 2017. Analysis of Revenue Budgets and Budgetary Control Policy. International Journal of Research, 4(17), pp.2867-2875.