5.Explain the role of the budget in the business control cycle.
Budgets can be used to help a firm meet goals and objectives. The business control cycle consists of four steps. The first is setting the standard, that is, creating the budget. The next is recording the performance of the company's departments. Third, variances from the budget are identified and analyzed to understand why they occurred. Finally, action can be planned to either correct problems identified this way, or to put preventive measure in place to enhance future performance.
6.Analyze internal and external control mechanisms that can be put in place to monitor and evaluate the budget.
Internal control mechanism could include consistent follow-up on internal and external audit findings and reporting findings of internal audits to the head of the organization or governing board. External control mechanisms are the external audit: since the Sarbanes-Oxley Act, it is generally prohibited for external auditors to conduct internal audits, making it less likely that there will be ethics problems regarding internal or external audits. However, adding a due diligence function to the internal audit function, to both oversee internal audits and to evaluate external audits and recommend action, is also more prevalent since Sarbanes-Oxley.
7.Describe how the budget can be used in the performance accountability and reward process.
The budget can be used both directly and indirectly in the accountability and reward process. In using budgets for accountability, comparing a manager's expenditures to those in the budget will provide a gross idea of whether there was a cost savings or cost overrun; it will take additional information, such as inventory figures, quality control statistics, human resources statistics, sales figures and so on, to determine whether the manager (department, etc.) performed well or poorly. Therefore, while the budget alone will not provide all the answers, it provides the substrate upon which the answers can be constructed. In determining rewards, somewhat the same principles hold: using the gross comparison of expenditure to budget will not provide all the answers, although it does form a basis for determining whether a manager or department has outperformed...
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