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• AC 1.1Relationship between the financial function and other functional areas within organizations

The financial function is an important part of any organization and plays a vital role in its overall operation and success. It is responsible for managing the organization’s financial resources, including its revenue, expenses, and assets. It also plays a key role in the decision-making process, providing important financial information and analysis to help the organization make informed decisions. There are many other functional areas within an organization that are closely related to the financial function, including:

• Marketing: Marketing is responsible for promoting the organization’s products or services and attracting customers. The financial function plays a role in helping to determine the marketing budget and in analyzing the financial performance of marketing campaigns.
• Operations: The operations function is responsible for the day-to-day running of the organization, including the production of goods or delivery of services. The financial function helps to ensure that the organization has the financial resources necessary to support its operations and to make strategic investments in new equipment or technology, (Zietlow, Hankin, Seidner, & O’Brien, 2018).
• Human resources: The human resources function is responsible for managing the organization’s workforce, including hiring, training, and development. The financial function plays a role in helping to determine the budget for employee salaries and benefits and in analyzing the financial impact of employee-related decisions.
• Information technology: The information technology (IT) function is responsible for managing the organization’s technology infrastructure and systems. The financial function plays a role in helping to determine the budget for IT investments and in analyzing the financial impact of IT-related decisions.

Overall, the financial function is closely interconnected with the other functional areas within an organization, as it provides the financial resources and analysis needed to support their operations and decision-making processes.

• AC 1.2 Examine the impact of financial objectives on decision making within organizations.

Financial objectives are a key factor that influences decision making within organizations. These objectives, which can include goals related to profitability, liquidity, and risk management, help to guide the actions of managers and employees, and shape the overall direction of the organization. For example, if an organization’s primary financial objective is to maximize profitability, then decisions made within the organization are likely to be focused on increasing revenues and minimizing costs. This might involve implementing cost-cutting measures, such as reducing expenses or streamlining operations, or finding new ways to generate revenue, such as expanding into new markets or launching new products or services. On the other hand, if an organization’s financial objective is to maintain a high level of liquidity, then decisions might be focused on managing cash flow and ensuring that the organization has sufficient funds available to meet its financial obligations as they come due. This could involve taking steps to increase the organization’s cash reserves, such as reducing investments in long-term assets or slowing the growth of the business. Overall, financial objectives play a critical role in decision making within organizations, as they help to provide a clear set of goals and priorities that can guide the actions of managers and employees.

• AC 1.2 Differentiate between management accounting and financial accounting

Management accounting and financial accounting are two different branches of accounting that serve different purposes and cater to different audiences. Management accounting, also known as managerial accounting or cost accounting, is focused on providing information to the internal management of a company for decision-making and planning purposes. It helps managers understand the costs of running a business and make informed decisions about how to allocate resources. Management accounting includes a wide range of activities such as budgeting, cost-benefit analysis, and forecasting. It is more concerned with the future and focuses on providing information that is relevant to the management of a company. Financial accounting, on the other hand, is focused on providing information to external stakeholders such as shareholders, creditors, and regulatory agencies. Its primary purpose is to report the financial performance and position of a company through financial statements such as the balance sheet, income statement, and statement of cash flows. Financial accounting follows a set of rules and guidelines known as Generally Accepted Accounting Principles (GAAP) which ensure that the financial statements are accurate and reliable, (Langfield-Smith, Thorne, & Hilton, 2018). There are several key differences between management accounting and financial accounting:

• Audience: Management accounting is meant for the internal management of a company, while financial accounting is meant for external stakeholders.
• Purpose: The purpose of management accounting is to provide information for decision-making and planning, while the purpose of financial accounting is to report financial performance and position.
• Focus: Management accounting is more focused on the future and is concerned with providing information relevant to the management of a company. Financial accounting, on the other hand, is focused on the past and is concerned with reporting historical financial information.
• Rules and guidelines: Management accounting is not bound by any specific rules and guidelines, while financial accounting follows GAAP.

In conclusion, management accounting and financial accounting are two different branches of accounting that serve different purposes and cater to different audiences. While management accounting is focused on providing information to the internal management of a company, financial accounting is focused on providing information to external stakeholders, (Deegan, 2022).

• AC 1.4 Analyse the impact of organisational and regulatory frameworks on an organisation’s approach to financial management

Organizational and regulatory frameworks can have a significant impact on an organization’s approach to financial management. Organizational structures, policies, and procedures can influence how an organization manages its financial resources and makes financial decisions. For example, a decentralized organizational structure may give more financial decision-making power to individual business units or departments, while a centralized structure may centralize financial decision-making at the top level of the organization, (Yang,  Ishtiaq, and Anwar,  2018). Regulatory frameworks, such as laws, industry regulations, and accounting standards, can also shape an organization’s financial management practices. These regulations may establish certain requirements or constraints that an organization must follow when it comes to financial reporting, budgeting, and other financial management activities. For example, there may be regulations that mandate certain financial reporting requirements or that prohibit certain types of financial transactions. In summary, organizational and regulatory frameworks can both have a significant impact on an organization’s approach to financial management. These frameworks can shape how financial decisions are made, who has decision-making power, and what requirements and constraints must be followed.

• AC 1.5 Analyze the challenges organizations face accessing finance

There are many challenges that organizations face when trying to access finance. Some of the most common challenges include: Lack of collateral: Many organizations, especially small and medium-sized enterprises, may not have collateral to offer as security for a loan. This can make it difficult for them to access traditional forms of financing, such as bank loans. Poor credit history: A organization’s credit history can impact its ability to access finance. If the organization has a poor credit history, it may be difficult for it to obtain a loan or other form of financing. Limited financial history: Organizations that are new or have limited financial history may have difficulty obtaining finance. Lenders may view these organizations as being high-risk and may be hesitant to lend to them, (Chang, et al, 2020). Complex application process: The application process for financing can be complex, time-consuming, and require a lot of documentation. This can be a challenge for organizations that do not have the resources or capacity to navigate the process. High interest rates: Organizations may face high interest rates when trying to access finance, especially if they are perceived as being high-risk by lenders. Limited options: Organizations may have limited options when it comes to accessing finance, especially if they do not meet the requirements of traditional lenders. Economic uncertainty: Economic uncertainty can make it difficult for organizations to access finance, as lenders may be hesitant to lend in times of uncertainty.

• AC 1.6 Differentiate between budget setting and financial forecasting

Budget setting and financial forecasting are two important financial management activities that help organizations plan and manage their resources effectively. Although they are related, they are distinct processes that serve different purposes. Budget setting involves the process of creating a financial plan for a specific period of time, typically a year. It involves estimating the organization’s income and expenses, and allocating resources accordingly. The budget serves as a roadmap for the organization, helping it to achieve its financial and operational goals. Budget setting is a forward-looking process that helps the organization to plan for the future and make informed decisions about how to allocate its resources. Financial forecasting, on the other hand, is the process of predicting the organization’s future financial performance. It involves analyzing the organization’s past financial performance, economic conditions, and industry trends to make educated guesses about future revenue, expenses, and cash flows. Financial forecasting helps the organization to identify potential risks and opportunities, and to make informed decisions about how to respond to them, (Ho, 2018). There are several key differences between budget setting and financial forecasting. The most significant difference is the time horizon. Budget setting is a short-term process that focuses on a specific period of time, typically a year. Financial forecasting, on the other hand, can be a short-term or long-term process, depending on the organization’s needs. Another key difference is the level of detail. Budget setting involves creating detailed plans for each department and function, while financial forecasting is more general, focusing on overall financial performance. In summary, budget setting and financial forecasting are two important financial management activities that help organizations plan and manage their resources effectively. While budget setting is a short-term process that involves creating a detailed financial plan for a specific period of time, financial forecasting is a longer-term process that involves predicting the organization’s future financial performance based on past performance and industry trends. Both processes are essential for effective financial management and decision-making.

• AC 2.1 Evaluate budget setting approaches used by organizations

There are several approaches that organizations use to set their budgets. These approaches can be classified into two main categories: top-down and bottom-up. Top-down budgeting involves setting overall financial targets for the organization and then allocating resources to various departments or units to achieve those targets. This approach is typically used by larger organizations with centralized decision-making structures. One advantage of top-down budgeting is that it allows for better coordination and control of resources across the organization. However, it can also be inflexible and may not take into account the specific needs and goals of individual departments or units. Bottom-up budgeting involves allowing individual departments or units to propose their own budget requests based on their specific needs and goals. These requests are then consolidated and reviewed by higher levels of management before being finalized. This approach is often used in smaller organizations or those with decentralized decision-making structures. One advantage of bottom-up budgeting is that it allows for more local control and can be more responsive to the needs of individual units. However, it can also lead to conflicting budget requests and may be less effective at coordinating resources across the organization, (Steiss, 2019). Another approach to budget setting is zero-based budgeting, which involves starting from scratch and building a budget based on the specific activities and goals of the organization. This approach can be time-consuming and requires a thorough review of all activities, but it can also be an effective way to identify and eliminate unnecessary or underperforming activities. Regardless of the approach used, effective budget setting requires careful planning, consideration of the organization’s goals and resources, and ongoing monitoring and review. It is also important for organizations to have a clear understanding of their operating environment, including any external factors that may impact their budget. In conclusion, there are several approaches that organizations can use to set their budgets, including top-down, bottom-up, and zero-based budgeting. The most appropriate approach will depend on the specific needs and goals of the organization, as well as its size and decision-making structure. Ultimately, effective budget setting requires careful planning, consideration of the organization’s resources and goals, and ongoing review and monitoring.

Managing and setting a budget

• AC 2.2 Analyze the factors that impact on budget management

Budget management is the process of creating, implementing, and monitoring a financial plan for a company or individual. There are several factors that can impact budget management and the effectiveness of a budget. Inflation: Inflation is a measure of the increase in the general price level of goods and services over a period of time. Inflation can impact budget management by decreasing the purchasing power of money. This means that the same amount of money will be able to purchase fewer goods and services as time goes on. Economic conditions: The state of the economy can have a significant impact on budget management. A strong economy with low unemployment and high consumer confidence can lead to increased revenue and profits, while a weak economy can result in decreased revenue and profits. Changes in tax laws: Changes in tax laws can impact budget management by altering the amount of money that a company or individual has available to spend. For example, if tax rates are increased, then there will be less disposable income available to be used for budgeting purposes. Unforeseen events: Unforeseen events, such as natural disasters or pandemics, can have a significant impact on budget management. These events can lead to unexpected expenses and a decrease in revenue, making it more difficult to stick to a budget, (Shahzadi, et al, 2018). Personal financial goals: Personal financial goals can also impact budget management. If an individual has a specific goal in mind, such as saving for a down payment on a home or paying off debt, then their budget will need to be structured in a way that allows for the necessary savings to be made. Overall, budget management is a complex process that is affected by a variety of internal and external factors. By being aware of these factors and making adjustments as needed, individuals and companies can better manage their budgets and achieve their financial goals.

• AC 2.4 Specify corrective actions to be taken in response to budgetary variance

Budgetary variance occurs when actual expenditures or revenues differ from what was budgeted. This can be caused by a variety of factors, including changes in economic conditions, errors in forecasting, or unexpected expenses or income. When a budget variance occurs, it is important to take corrective action to ensure that the organization stays on track financially. There are several steps that can be taken in response to a budget variance. First, it is important to identify the root cause of the variance. This may involve analyzing financial data, reviewing budgeting assumptions, and seeking input from relevant stakeholders. Once the cause of the variance has been identified, it is important to develop a plan to address it. This may involve adjusting budgeted amounts, finding ways to reduce expenses, or increasing revenues, (Ermasova, and Ebdon, 2019). One possible corrective action is to implement cost-saving measures. This could involve negotiating lower prices for goods and services, streamlining processes to reduce waste, or implementing energy-efficient practices. Another option is to increase revenues through marketing and sales efforts, or by offering new products or services. It is also important to regularly review and monitor budget performance to ensure that corrective actions are effective and to identify any additional issues that may arise. This may involve setting up systems to track budget performance, such as regularly reviewing financial statements and conducting budget reviews. Overall, the key to effectively addressing budget variance is to identify the cause, develop a plan to address it, and regularly review and monitor progress. By taking these steps, organizations can maintain financial stability and achieve their goals.

• AC 2.5 Discuss reporting procedures for authorizing corrective actions to a budget

Corrective actions to a budget are often necessary in order to address issues or discrepancies that may arise during the course of a project or financial period. It is important that these corrective actions are properly authorized and reported in order to maintain transparency and accountability. There are several key steps that should be followed when reporting the authorization of corrective actions to a budget. First, the individual or team responsible for the budget should identify the issue that needs to be addressed and determine the best course of action to resolve it. This may involve consulting with other stakeholders or seeking guidance from superiors. Next, the individual or team should prepare a report outlining the issue, the proposed corrective action, and the rationale behind it. This report should be submitted to the appropriate authorities for review and approval, (Li, 2019). If the corrective action is approved, it should be implemented as soon as possible in order to minimize any negative impact on the budget or project. The individual or team responsible for the budget should also document the implementation of the corrective action, including any changes made and the results achieved. It is important to note that corrective actions to a budget should only be authorized after careful consideration and review. Any changes made should be justified and transparent, and the impact of the corrective action should be thoroughly documented and reported. This will help to ensure that the budget remains accurate and effective, and that any necessary adjustments are made in a responsible and accountable manner.

Formulate a budget with written justification

• AC. 2.3 Budget for an area of management responsibility

Above is a budget for the sales and marketing department. The company considers the revenue will constantly grow at an average of 3% for every month in the year 2023. The management has estimated that the advertisement & props cost will be at 5% of revenue each month. The sales commission are also estimated to cost 6% of the revenue each month. For the marketing purposes the company managers are estimating the cost at 5% of the revenue for every month. Recruitment of additional personnel has been estimated £50,000 being the lowest and £65,000 being the highest. The current personnel on sales and marketing will be sufficient up until sales levels get above £4,917271.51. training and development is expected to cost 3% of the total revenue. The company has considered the corporate social responsibility. This has been randomly generated for the 12 months.

References.

• Deegan, C. 2022. Financial accounting theory. Cengage AU.
• Zietlow, J., Hankin, J. A., Seidner, A., & O’Brien, T. 2018. Financial management for nonprofit organizations: policies and practices. John Wiley & Sons.
• Langfield-Smith, K., Thorne, H., & Hilton, R. W. 2018. Management accounting: Information for creating and managing value. Sydney: McGraw-Hill Education.
• Yang, S., Ishtiaq, M. and Anwar, M., 2018. Enterprise risk management practices and firm performance, the mediating role of competitive advantage and the moderating role of financial literacy. Journal of Risk and Financial Management, 11(3), p.35.
• Chang, V., Baudier, P., Zhang, H., Xu, Q., Zhang, J. and Arami, M., 2020. How Blockchain can impact financial services–The overview, challenges and recommendations from expert interviewees. Technological forecasting and social change, 158, p.120166.
• Ho, A.T.K., 2018. From performance budgeting to performance budget management: theory and practice. Public Administration Review, 78(5), pp.748-758.
• Steiss, A.W., 2019. Strategic management for public and nonprofit organizations. Routledge.
• Shahzadi, S., Khan, R., Toor, M. and ul Haq, A., 2018. Impact of external and internal factors on management accounting practices: a study of Pakistan. Asian Journal of Accounting Research.
• Ermasova, N.B. and Ebdon, C., 2019. The Case of Public Capital Budgeting and Management Processes in the United States. In Capital management and budgeting in the public sector (pp. 23-48). IGI Global.
• Li, W., 2019. The Evolution of Performance Budgeting Initiative in Guangdong, China. In Performance Budgeting Reform (pp. 190-198). Routledge.

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