WILLIAM L. WENCESLAO JR.

Contact Number 0948-693-1360

BA202 Managerial Accounting

1. Describe the budgeting process of the company/organization you are currently connected
with. Describe the extent of your participation in terms of setting up periodic budget and
how do you participate in it. If given a chance, what modification in the budgeting process
as you mentioned above, you’d like to suggest and justify why. (20 points)

Since I have been assigned as Production in charge part of my responsibilities is

also to budget estimated demand or sales especially during Christmas and New Year
season and continuously monitor the movements of sale and production, what I did
here is to make budget sales in units to be delivered at specific area (Branches/Mall)
so our basis for this is simply sales percentage last year. I will then assign how
many units on the basis of the given budget to be delivered.

2. Do an interview with anyone from the budget/finance/accounting department of the same

company about the challenges they’ve went thru in the budgeting process and how do they
go about the issues. (10 points)

According to our Disbursement officer some challenges are unexpected expenses

that arises beyond the budgeted given that was not included in the budget.
 3. Make a literature review about unethical behavior/practices in budgeting. Cite your
references. (20 points)

The Journal article entitled “Toeing the Line: The Ethics of Manipulating Budgets and
Earnings by Kenton B. Walker Ph.D., and Gary M. Fleischman, Ph.D., CMA, CPA at
The University of Memphis was published on January 2013 through Research Gate

Summary :

An undesirable and often unethical behaviors generally occur in two related contexts

1. Biasing information or otherwise coordinating activities to “game” the realization of

budgets
2. Timing reported or actual economic events to shift income between periods, also known
as earnings management

Important reason to study the ethics view of accountants and other financial professionals about
decisions made in these contexts

1. Sarbanes Oxley Act of 2002(SOX) makes CFOs and controllers responsible for
ensuring that financial processes, including budgeting and financial reporting, are
sound and that information is reliable.
2. Companies need to know the ethics view of employees
3. Employees may not even be aware of ethics issues related to budgets and earnings
management, suggesting a need for intervention.
4. It is instructive to know how individuals in supervisory roles might act to reinforce or
reprimand employee behavior as part of management development activities.

“INCOME SMOOTHING” AND

OTHER ETHICAL GRAY ZONES

Compensation often is determined in part by meeting certain earnings targets, frequently rooted in
the budget. Managers, in turn, have incentives to manipulate earnings, the budget, or both to
maximize their pecuniary benefits (such as salary, commissions, or bonus) while avoiding actions
that might make it more difficult to meet next year’s performance standards. For example, they
may choose various inventory and bad debt accounting methods, or they may manipulate
revenues and expenses as the circumstances dictate.

Many compensation experts believe that organizations can eliminate incentives to manipulate
budgets or quotas and/or manage earnings only if managerial incentive contracts do not include
accounting measures.

Budget-based performance standards create incentives to “sandbag” or “game” the budget

process, manipulate information, and engage in improper arrangements with customers. Most
companies choose performance standards based on their business plan, budget, or prior-year
performance. These metrics are “internal” standards because they are based, in large part, on
managerial actions or performance in the current or prior year as compared with external
standards that are not affected by managers. Income smoothing (earnings management) is more
common in companies that use internal standards. Managers manage earnings to meet, but not
exceed, the budget and to realize bonuses that are close to their target maximums.

Budget-based performance contracts are one of the most common causes of dysfunctional
behavior in organizations. This approach to motivating people has induced them to engage in
behaviors that include lying, cheating, and shirking. In addition, these systems fail to create
enduring commitment, they increase dependency rather than empowerment among employees,
and they lead to management cultures based on fear, all of which may lead to dysfunctional
behaviors. Indeed, one of the most serious corporate-level consequences of tying the budget to
pay is the tendency for the entity to compromise its integrity and reputation, possibly leading to
fraudulent behavior by employees and managers alike.

Whether gaming the budget is an accepted practice or not, behavioral norms in an organization are
sometimes an explicit factor in determining the ethicality of budgetary manipulation. This behavior
is often a response to management pressure: Higher levels of management are generally
accepting of this practice and are concerned more with controlling slack instead of eliminating it.
4. Tying up altogether, compare and contrast the processes, goals/purposes, personnel
involvement, etc. Between your chapter reading takeaways and the practical budgeting
(actual budgeting) of the company you are/were engaged. (20 points)

We have meetings each year in our company and it happens at the beginning of the
month. In order to accomplish it before budgeting proceeds, we address our
priorities for the year and specify our task. For example Budgeting for the first and
second months of the year will also try to ask questions such as how much flour
sacks ought to be bought. So here, our basis would be the actual production for the
last year.

Based on the chapter readings planning and control plays central part in the
budgeting process of the management. Where, as part of the management, I work
with my colleague who assigns various tasks and coordinates on the basis of our
budget.