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Accounting and Finance: An Introduction - McLaney and Atrill (2018) - Chapter 13 (Summary)
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Week 10 – Accounting and FinanceChapter 13 – Accounting for control
BUDGETING FOR CONTROL
- Control involves making events
conform to a plan
- If plans are drawn up sensibly, we
have a basis for exercising control
over the business
- Exercising control involves
identifying where and why things
did not go according to plan and
then seeking ways to correct them
for the future
- One reason why things may not
have gone according to plan:
budget targets were unachievable;
necessary to revise the budgets
- Providing there is an adequate system of budgetary control decision making and
responsibility can be delegated to junior management
- Management-by-exception environment where senior management can focus on
areas where things are not going according to plan
TYPES OF CONTROL
- Feedback control = steps are taken to get operations back on track as soon as there
is a signal that they have gone wrong
o React to existing problems
o remedial
- Feedforward control = predictions are made as to what can go wrong and steps are
then taken to avoid any undesirable outcome
o Budgets can be used to exert this type of control
o Preparing a budget and then comparing it with a forecast of actual outcomes
in order to identify potential problems
o Proactive
o Tries to anticipate problems beforehand
o Preventative
o This type of control is preferred over feedback control
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