Managerial Accounting When Is Budgeting

¶ … Managerial Accounting

When is budgeting an adequate tool for planning and control in organizations and when should alternative approaches be considered? Is budgeting obsolete in the 21st Century organization?

One of the biggest challenges that most businesses have been facing is from increasing competition because of globalization. What has been happening is the reduction in trade barriers and improvements in technology are creating a shift in how firms are operating. This has meant that there are different budgeting standards and techniques that are being utilized by a wide variety of organizations around the world. As, they are seeking to: improve their analysis of financial results in to order increase their profit margins and quickly adapt to changes that are occurring inside the marketplace. This has led to a transformation in how many organizations are dealing with accounting related standards. To fully understand what is taking place requires looking at: key factors related to budgeting, alternatives that could be used in organizational planning and examining the way certain aspects of budgeting are becoming obsolete in the 21st century. Together, there different elements will provide the greatest insights as to how it can be an effective tool and what aspects are becoming archaic in the new millennium.

Key Factors related to a Budget and the Relationship between Corporate Strategy with Budgeting

There are several different factors that are considered to be part of budgeting include: market share, growth and cash flow. Market share is when the company is focusing on increasing their total amount of sales and where they are ranked in the sector among competitors. Growth occurs when executives are concentrating on improving sales, reducing their costs and raising their profit margins. Cash flow is the total amount of money the business has available to reinvest back into itself. These elements are important, because they are showing how they will impact the kinds of decisions that are being made by executives on a regular basis. This has an effect on: the kind strategy they are using to achieve their objectives, the attitude among employees / managers and how quickly a firm can adapt to changes inside the marketplace. ("Business Success in Today's World," 2009)

Alternatives that can be used in Organizational Planning

One possible alternative that could be used to help provide businesses with better reporting is for them to begin using International Financial Reporting Standards. This is when the largest economies in the world, agreed to work together to create universal budgeting procedures that everyone can use by 2014. The basic idea behind this approach is to improve transparency and accountability, by having all of the various firms following widely accepted accounting practices. Once this occurs, is when there will be a shift in the way organizations are planning for a host of events. As a result, this kind of approach should be considered by all firms because of the increased amounts of competition from globalization. ("What's Ahead for International Accounting Standards," 2009)