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Question 1 :

“Comparing actual results with the budget,adjusting plans when

necessary, and evaluating the perfomance of managers, are essential
elements of budget control. Many people, however, find the control phase
difficult. When bussiness results are less than expected,it may be painful
to evaluate the results. For some, it is much easier to loook ahead to
future periods,when things hopefully will be better. But, frequently realistic
plans for future success can be made only when management learns from
it past mistakes”.

a) What are the platforms to be considered, in order to have a

complete and effective budgeting system?

There are many factors to be considered in delivering a complete

and effective budgeting system. 3 types of financial statements
commonly used in budgeting system are Pro forma Income
Statements, Statement if Cash Flow anf Pro Froma Balance Sheet.

The Pro Froma Incomes Statements is for the company to assess

their retain income for the period that they budgeted. Cash Flow is
the tool for the company to see the strength of their cash flows. It is
normally used in the short term budgeting. And the Pro forma
Balance Sheet is to see the health of the budgeted year. From the
balance sheet a company can evaluate their company performance
by doing the liquidity ratios. All these financial statements also
highlight if there is a need for external financial requirements.

And as most companies are focusing onthe financial gain as the

outcome, the most commonly practice is to start with a reliable sales

b) Why do yo think are the likely reasons that most

organizations need to prepare budget almost every year?

• To be able to determine the expected return on investment

• To knowing how much to invest and if it is wise to expand or grow

the business
• To eliminate risks and to be able to prepare other means to
cishions the impact that is foreseen to come

• To be able to determine the expected return on investment

• Accurate forecast help the company to prepare better master


• The ability to optimize the capital expenditure

• Practising forecasting also help the company to gain in depth

knowledge of their customers, product they preffered, trend in
sales and the capacity of order

• For better planning for production and other resources

c) Explain the different between the Government budget and

the business budget. Why sometimes managers used budget
as scapegoats for unpopular decisions?

Government budget Business budgets

Totally expenditure Require income before a
company can spend
Revenue in the form of grants Revenue in the form of sales
Objectives : Objectives :

• To establish the As shown above (question 5b)

general framework for
the control of public
• As a broad
requirements of a good
financial mgmt systems
in government
• Govern the methods of
which public funds are
to be administered and
accounted for
• Provide for division of
various revenues of
Federal and State
• Define the burrowing
powers of Federal and
State government
• Specify basic principles
of government finance
• As a requirement to
prepare financial
• As a requirement to
prepare annual
statements of assets
and lialibuilities

Budget is determined on certain degrees of un certainty thus the

question on its reliability. Especially in a fast moving business
environment such as technology or anything with short life-cycle,the
budgeting and forecasting has be very flexible and normally needed
more cushions. That is why managers use it as scapegoats for
unpopular decisions.

Question 2 :
You have been intoduced by your Financial Controller to the two newly
appointed Accountants in your organization who will be heading your
factory operations and your head office administration. One of them is a
Chartered Accountant and the other is a qualified Association of Certify
Management Accountants (ACMA). Owing to unforeseen circumstances,
the Financial Controller was admitted to Hospital at the 11th hours before
the Board of Directed meeting. You have been requested by your CEO to
appear in front the Board members :

a) Explain the different job descriptions of both newly

appointed Accountants

Reports audience : Financial Accountants involves the preparation

of a business’s financial statements, mainly for users outside the
business. These reports are used by owners, potential owners of a
business, debtors and creditors. Some government agenciesthah
regulate business and the stock market require companies to submit
financial statements to them. Additionally, stockholders, suppliers
and banks also benefited from these financial statements.

Managerial accounts helps managers plan and control company’s

operations. Accountants prepare budgets to express managements
goals in financial terms by identifying,measuring, accumulating,
analyzing, intepreting and communicating information. After a
budget has been adopted, perfomance report will compare the
budget with the actual happenings. Cost accounting will enable a
company to keep track of how much it costs to make/produce a
product or provide the service the company is offering.

Rules and Regulations : In financial accounting, it is limited by a

widely accepted set of rules, standards and procedures for reporting.
It is known as GAAP or Generally Accepted Accounting Practice. And
this standards was established by the FASB of Financial Accounting
Standard Board. This standard requires that a company “account for
all their assets or economic resourses according to their historical

Managerial accounting does not require the implementation of the

rules and procedure of GAAP. Management of an organization can
create any type of internal accounting system that will work best for
their company. However, they need to be aware of the
implementation cost of such a system. They also need to take into
account the information tha needs to be kept. More than one set of
records is usually the norm.

Both financial and managerial accounting must abide by the Foreign

Corrupt Practices Act. This act is a US law forbiding bribery and other
corrupt practices and requiring that accounting records be
maintained in reasonable detail and accuracy, and that an
approriate system of internal accounting be maintained.

Reporting Requirements : Financial accounting usually utilizes

summary reports that are concerned primarily with the company as
a whole. To contrast, managerial accounting usesmore detailed
reports which itemized part of the company such as products,
departments and territories.

Purpose / Report Orientations : the use of perfomance is an

important factor in financial accounting. These reports provide
‘feedback by comparing results with plans and highlighting
variances’ within the companies.

Managerial accounting mainly includes decision making ‘the

purposeful choice from among a set of alternatives courses of action
design to achieve some objective’. Focus on one of the two types of
decision making, planning and control, is recommended for
managerial accounting.

Qualifications : Financial Accountant- Chartered Accountant (CA),

Association of Certified Chartered Accountants (ACCA). Certified
Public Accountant (CPA), Bachelor in Accountancy. Managerial
Accountant – Institution of Cost and Work Acc (ICWA), Chartered
Institution of Management Accountant (CIMA).

Both financial and managerial accountings are very important

aspects in the business. By following the appropriate standards for
each, the company will be able to successfully keep track of their
financial standing.

b) Prepare a list and give a short brief on each of the

“Basic Accounting concepts” commonly used by
▪ Entity Concept

Under this concept the business are consider to be separated from

the owner. This means that the business can own assets, have
liabilities and enter into transactions.

▪ Money Measurement

Accounting data are recorded in monetary terms at the value in

time transaction is done. Have limitation of not
everything has monetary value and the price changing.

▪ Going Concern

Means that the business is assumed to be in operation in the

foreseeable future, usually in one years and also it assume that the
business will not reduce its size operation

▪ Periodicity

Requires accounting report to be prepared in periodic intervals of

usually in one year and also require report on their stewardship
from time to time to the owners.

▪ Materiality

Relates to the cost or value attached to the item in the relations to

overall operation of an enterprise / company. An item is material
if its inclusions or omission will influence decisions of financial user

▪ Dual Aspect
Every transaction has dual impact on accounting records. Based on
the formula/equation :

Assets = Equalities

Assets = Liabilities + Owner’s Equity

▪ Conservatism

According to standards procedure that has been determine by the

statutory bodies. Example Malaysia Accounting Standards Boards

▪ Prudence

To recognize revenue only when it’s earned but also to provide for
anticipited loss before it is incurred

▪ Consistency

The accounting policies choose by company has to be consistently

applied to similar items and over time period