Budgeting Basics and Beyond

1.9. Budgetary Control and Audit

As discussed previously, the budget is a major control device for revenue, costs, and operations. The purpose is to increase profitability and reduce costs, or to meet other corporate objectives as quickly as possible. Budgetary control may also be related to nonfinancial activities, such as the life cycle of the product or seasonality. An illustrative budget control report is shown in Exhibit 1.4.

A budget audit should be undertaken to determine the correctness of the budgeted figures. Was there a proper evaluation of costs? Were all costs included that should have been? What are the cost trends? Are budgeted figures too tight or too loose? Are budgeted figures properly supported by documentation? A budget audit appraises budgeting techniques, procedures, manager attitudes, and effectiveness. The major aspects of the budgeting process have to be examined.

Exhibit 1.5 depicts the control process in budgeting.