Question

When an annual budget is created, should it ever be changed? Why or why not? If you answered yes, provide an example of when you might change the annual budget.

Answer 1

Giving you an actual example that I have seen. (I have actually created these budgets/forecasts)

Practically, budgets are made before year end. In this example the budgets were made in November based on data till September. So the budget for 2020 have already been drawn up.

Now during the next year after every period end, the actual results would be compared with the budgeted numbers. Alot would have actually changed between September data and the year 2020. There may be a huge political change or some economic condition might have changed. So how do you account for such changes?

The only practical approach is to update the Budgeted figures.

So, in this practical example, such changes were made two times during the year. In 2020, two times the budget would be revised.

A budget is changed in order to be in line with the change in business environment and all ancillary ones as well.