Question

What category of budgets are the governance board more likely to be interested in?
The two categories of budgets are operating and financial. The board is more likely to be interested in the financial budgets.
a. With a long-term view, which specific two budgets are the most relevant to the governing board and for what reason? (50–80 words)
b. A new governance board member is constantly asking the accountant questions about the motor vehicle expenses that are constantly over budget. They blame one of the business managers who they dislike and point to the fact that the manager has an unnecessary sports pack on their car. What type of budget does the motor vehicle expense belong to? Who is responsible for this budget? What steps would you take if you were the accountant? (50–80 words)
c. What does the budget audit examine? (50–80 words)
d. What does the budget audit detect and how frequently should it occur? (50–80 words)
e. What corrective action does the budget audit consider? (140–160 words)

Answer 1

a. The governing body will most likely to be interested in sales budget and expenses budget viz., operating expenses and non operating expenses budgets. This is due to the fact that the revenues and profitability of the firm are estimated through these budgets and help in financial planning and expense allocation. Budgeting for revenues helps in ascertaining the capital expenditure to be taken to achieve the targets.

b. The motor vehicle expense belongs to administrative expenses budget since the motor vehicles are used by the company's staff and they fall under that category. The human resources team is usually responsible for this budget since it includes all administrative charges such as staff salaries, office expenses among others. The accountant can have a discussion with the HR about reducing the benefits to employees and also encourage car pooling or common travel methods to bring down expenses.

c. A audit of the budget examines if the budgets can been prepared according to the company's policy and considering all conditions. It checks if the budgeted figures are overestimated or underestimated and the reasons for doing so. Also it checks if the budgeted figures are supported by appropriate evidence.

d. The budget audit is usually used to detect any problems and discrepancies in the budgeting process. It must be conducted by every 2-3 years depending on the size of the company and its nature of business. The audit must be conducted by an independent party and must be reported to the top management.

e. The audit considers the areas where the figures have been misappropriated and the functions are not proper. It considers the deadlines with in the corrective procedures must be implemented. The activities suggested must be periodically reviewed and updated to the management. The roles and responsibilities for the corrective actions must be clearly demarcated and time frames to be allocated accordingly. All significant findings and corrections taken thereafter must be backed by sufficient evidence rightly pointing out the finding that has been addressed. A report must be prepared of the findings, the correct action taken, the time frame within which the action was completed and the person responsible for the same. Any further findings in the course of corrections must be highlighted as well. If the corrections could not carried out the same must be accounted for and the person responsible for the task must provide sufficient explanation for the lapse.