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Budgets and Financial Reporting

19 January, 2016 - 12:35

The finance function provides the oversight needed for preparation of required financial reports. Other business reports and analysis, both financial and nonfinancial, are easily accessed by technology supporting business intelligence capabilities. In addition, companies often employ budget analysts to assist managers in the identification and preparation of special reports containing financial plans. Examples of these include departmental budgets and performance reports.

The budgeting department advises and assists managers in preparing their budget. The budgeting department should not actually prepare the budget estimates; it should offer technical advice to the operating line managers as they develop the budgets for their centers. Good participative management practice argues that the responsibility for budget preparation should fall to the operating center managers who later will be held accountable for budget variations.

Review Question

What are the fundamental responsibilities of the budgeting department?

Figure 15.2 Internal and External Business Reporting Flows

Some budget assessment reports are called performance reports because they compare actual performance with budgeted expectations. In a hierarchically organized company, as information is reported upward, the level of detail is filtered, meaning that figures are aggregated (summarized) as they are reported to successive management levels. Figure 15.3 shows a specimen performance reporting flow for the production arm of an organization.

Figure 15.3 Responsibility Accounting Performance Reporting 

As we will discuss later in this chapter, major enterprise system vendors support much of this additional business reporting demand for performance reporting. The integration of this functionality allows these reports to be generated easily from information captured by business processes and maintained at the business event level in the enterprise-wide database. Technology Application 14.1 gives examples of successful budgeting and reporting systems.

Review Question

In your own words, what is a performance report?