ACCA PM Syllabus D. Budgeting And Control - Revise an original budget - Notes ^{4 / 4}

A budget forms the basis of many performance management systems.

Once set, it can be compared to the actual results of an organisation to assess performance.

A change to the budget can be allowed in some circumstances but these must be carefully controlled if abuse is to be prevented.

Allow budget revisions when something has happened that is beyond the control of the organisation (for e.g. a supplier has gone into liquidation; a rapid increase in world market prices of a particular material) which renders the original budget inappropriate for use as a performance management tool.

These adjustments should be approved by senior management who should attempt to take an objective and independent view.

Disallow budget revisions for operational issues.

Any item that is within the operational control of an organisation should not be adjusted.

This type of decision is often complicated and each case should be viewed on its merits.

The direction of any variance (adverse or favourable) is not relevant in this decision.