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Lecture Notes 4

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Queensland University of Technology

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 1. Identify remedial enrivonrment, action SWOT, recent results 2. Formulate 4. Report and quanity acbudgetgainst (targety markets etc) 3. Produce budgets  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 Manager - Marketing and regional worker 1 Sales Owner Manager - regional worker 2 Finance Manager - Production local worker 1 local worker 2 local worker 3 Roles  Strategic planning = senior management  Budgeting and reporting = management accountants  Remedial action = line managers o Strategic management accountant should also design the process and provide value-adding advice throughout PURPOSES OF BUDGETING 5 Purposes  Budgeting process: procedures and activities undertaken to develop the budget  Budget has 5 major purposes – each is a major factor in achieving the goals 1. Planning o Strategies must be tested – scenario analysis e.g. increase or decrease return based on the actions of the business  Helps assist senior management to understand the implications of their decisions o The SMA’s role:  Produce a model  Test and re-test assumptions  Advise on possible scenarios and risk management  Scenari
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