CIMA Operational level Budgeting
CIMA Operational level Budgeting: Budgeting is part of the management control process by which “managers assure that resources are obtained and used efficiently and effectively in the accomplishment of the organization’s objectives.”CIMA Operational level Budgeting1 There are several kinds of budgets, and while specific terminology may vary from company to company, budgets generally fall into one of three categories.
CIMA Operational level Budgeting: Capital budgets. These budgets portray the corporation’s planned and approved capital expenditures for periods from one to ten years.
CIMA Operational level Budgeting: Financial budgets. Such budgets typically project cash flow statements, balance sheets, and statements of sources and uses of funds.
Operational budgets. These usually consist of projected income statements and a series of supporting statements—such as budgeted sales, budgeted production (in detail), budgeted cost of goods sold, budgeted selling expenses, and budgeted general and administrative expenses.
We shall deal solely with operational budgeting. We define it as the process of formalizing, quantifying, and expressing in a set of detailed operating plans the near-term performance expectations and objectives of a company’s management.
CIMA Operational level Budgeting: Roles of Operational Budgets
Budgets can be called upon to play a variety of roles. We shall discuss five of these. Three are major roles: planning, motivation, and evaluation; two are minor: coordination and education.
Planning—Operational budgets are plans; they provide details of what management hopes to accomplish and how. Their value in the planning process comes from the fact that budgeting forces management to examine in detail both the general economic situation of which the company is a part and the economic interrelationships among all the company’s various activities. Budgeting allows managers to explore how costs and revenues will behave under specific sets of operating assumptions.
The process often points out conflicts between top management’s objectives and the realities of the company’s capabilities. Through budgeting, management can both identify resources that will be necessary to achieve objectives and learn how those resources must be applied. If present resources cannot meet planned objectives, the process of operational budgeting may bring about an examination of the financial implications of additional asset procurement (capital budgeting).
Motivation—Management can use operational budgets to motivate persons to help achieve the organization’s overall objectives by committing them to a predetermined plan of action. Motivation can be said to have two elements: direction and strength.2
CIMA Operational level Budgeting
Budgets provide the direction in that a budget represents a quantification of management’s objectives. When the budgeting process is complete, each manager ends up with a specific target for which to aim. But an objective alone is rarely enough. To achieve objectives, a manager must be committed to working toward them.
Managers can gain commitment (the strength element of motivation) in a variety of ways. One frequently used technique is to link the performance evaluation of the manager with the company’s incentive system. When managers realize that their level of compensation and their upward mobility depend to a large degree on their performance, their commitment to budgeted objectives may be enhanced.
CIMA Operational level Budgeting
Budgeting is a process. This means budgeting is a number of activities performed in order to prepare a budget. A budget is a quantitative plan used as a tool for deciding which activities will be chosen for a future time period.
In a business, the budgeting for operations will include the following:
- preparing estimates of future sales
- preparing estimates of future cash collections and disbursements
- preparing estimates of the future day-to-day activities of the organization
- summarizing these estimates into an income statement and balance sheet
The budgeted income statement and balance sheet are also known as pro-forma financial statements. Once prepared and approved, the budgeted income statement and balance sheet are used to control the future activities of the business.
CIMA Operational level Budgeting: History and Services
CIMA Operational level Budgeting: The Chartered Institute of Management Accountants (CIMA) is a UK based professional body offering training and qualification in management accountancy and related subjects. It is focused on accountants working in industry, and provides ongoing support and training for members.
CIMA is one of the professional associations for accountants in the UK and Ireland. Its particular emphasis is on developing the management accounting profession. CIMA is the largest management accounting body in the world with more than 227,000 members and students in 179 countries. CIMA is also a member of the International Federation of Accountants.
CIMA operates a standard scheme of qualifying examinations for prospective members. It promotes local education, training and management development operations, and new techniques through its research foundation and the dissemination of management accounting practices through publications and other media related activities. CIMA has been active in recent educational and vocational initiatives in former Eastern bloc countries. It publishes a monthly journal, supplied free to members and registered students, called ‘Financial Management’.
CIMA is recognised as a professional accounting body for various statutory purposes by UK and various overseas governments. The institute regulates the activities of its members by a code of practice, a discipline committee and (a recent innovation) a continuing education scheme. Its governing body is its council, comprising members elected from regional branches. Each of the branches has a committee and is responsible for much of the ‘grass roots’ activity. Activity such as qualification development is undertaken from the London head office.
The CIMA Global Business Challenge, an annual international business and strategic management competition for undergraduates around the world, is designed to bring out the best in the young business leaders of tomorrow.
In July 2009, CIMA added an online community – CIMAsphere – to its website. The community consisted of a range of blogs, discussion boards, groups, community answers, expert Q&A sessions and some social networking features for members, students and the general public. This has since been shut down. Members are instead encouraged to join the CIMA LinkedIn group, and students are directed to CIMAconnect, an online study support portal.
In 2011, CIMA entered into a joint venture with the American Institute of Certified Public Accountants (AICPA) to launch a global management accounting designation called the Chartered Global Management Accountant (CGMA).In the Americas outside the U.S., non-U.S. CPAs can obtain the new designation as an AICPA International Associate, after a rigorous assessment process. In the rest of the world, new designation holders are able to become members of CIMA after the same assessment process.
CIMA is proactive to tie up with American CPA because of the current convergence trend between US-GAAP and IFRS, reinforced following the merger of the iconic New York Stock Exchange with Germany’s Deutsche Boerse AG. “It remains to be seen whether companies listed in a combined exchange would be required to report under IFRS, US GAAP or both, but as the US appears to be moving towards IFRS adoption it is more likely the international standards would be the accounting rules of choice”.