14.7 Accounting systems and budgetary control

Financial consultants may be invited to assist their clients in the development of accounting systems by means of which various transactions are recorded, collected and classified, entered into the various ledgers and books of account, and finally used to prepare the organization’s formal financial statements. This, however, is the work of qualified accountants, and consultants who are not also accountants should recommend that their clients obtain proper professional assistance in this area.

Budgetary versus accounting systems

Consultants participating in general management services activities are likely to be asked to assist in the design of budgetary systems rather than formal accounting systems. The emphasis here will be on management accounting – methods of collecting and analysing data to support internal decision-making rather than formal financial reporting. Both the objectives and the methods of management accounting are different from those of financial accounting, and the difference is essentially one of timeliness versus accuracy. Financial accounting emphasizes accuracy and detail, but produces reports that are historic. If decisions are made only when formal financial accounts are available, it is likely to be too late for those decisions to be effective. Clients need information quickly to support their decision-making, and in this context information that is approximate but timely is of far more value than information that is accurate but late.

The budgetary and control system will differ from company to company and should be developed for the individual organization rather than bought “off the shelf”. For most manufacturing companies, the component parts will include:

–a profit plan;

–the capital investment budget;

–wage and salary budgets;

–purchasing budgets and inventory control procedures;

–manufacturing direct cost budgets;

–general overhead budgets;

–sales, marketing and promotion budgets;

–recruitment and training budgets;

–the overall cash budget.

Most of these budgets will be further broken down by division and by department, reflecting the structure of the company.