Assignments - Budgeting Operational Plans

Assignments - Budgeting Operational Plans

Unit 3 Individual Project - Budgeting Operational Plans

Financial Reporting System

It is a system that sets basis for the accounting and reporting procedures of a firm to share financial information with the key stakeholders. Typically, financial reporting system (FRS) refers to the disclosure or summary of the financial performance of a firm in raising, utilizing and managing business assets (Armstrong et. al., 2009). Companies may adopt a traditional format to report financial information such as income statement, balance sheet and the statement of cash flow or they may choose a non-traditional design to report financial data such as graphics and text (Oracle, 2011).

A financial reporting system may comprise of five main components, as illustrated by figure 1 (Oracle, 2011).

Figure 1: Components of Financial Reporting System (Oracle, 2011, p. E20375-03)

According to World Bank (n.d.), growing corporate scandals such as Worldcom, Ahold, and Enron have put significant emphasis on the need of transparent and reliable financial reporting system in order to prevent such events that may have substantial social and economic cost associated with it (World Bank, n.d.). On a global scale, there are numerous standards and accounting principles to guide companies in designing their system of financial reporting such as IFRS, GAAP, and IAS.

A timely prepared financial reporting system enables a firm to address current issues and avail future opportunities by improving the quality of financial system and financial communications (Auditor General for Wales, 2013). Moreover, FRS helps to resolve agency issues and conflicts (Armstrong et. al., 2009).

Adoption of Activity Based Budgeting (ABB)

Opposite to traditional approaches of budgeting activity based budgeting identifies areas where cost can be turned into business savings. Management of ICBI may incorporate ABB by aligning activities with corporate objectives and rationalized cost while improving practices of the business. In contrast to operational budget, ABB may allow the firm to achieve cost efficiencies by comparing different activities that have been performed in various business sections and by combining key business functions (Investopedia, 2013).

At ICBI, ABB may embrace management with the ability to prepare precise forecast results by focusing on various business activities and their produced results. ICBI may deploy ABB by creating a tie between corporate strategies and key activities in order to identify the cost to develop budget. It will allow ICBI to recognize its true profit potential by analyzing the process-based cost structure of the firm (Investopedia, 2013). It is one of the best practices that may allow ICBI to standardize the system of cost management by creating an improved link between budgeting and cost management (Andersen, 2000).

Comparing and Contrasting ABB and Operating Budget

Both ABB and operating budget are the two significant approaches to budgeting and the two methods are used for short term strategy planning and short term budgeting. However, there are certain differences between the two methods (Bütçelemenin et. al., 2010). Activity based budgeting is based on the cost related to products and services of a business; whereas, operating budget is concerned with the estimation of profit and ...