Budgetary Slack As A Management Control Mechanism Accounting Essay

Budgetary Slack As A Management Control Mechanism Accounting Essay Introduction Budgeting control system is one of the popular mechanisms in the management control systems that have undergone significant shifts of emphasis in both literature and practices. Budget slack meaning a deliberate underestimation of revenues and overestimation of costs than of actual budget is one of the aspects of budgetary control in the research of contemporary accounting management literature. The conventional wisdom on budgetary slack underlies a negative image of slack creation by the managers to appropriate organizational resources available after optimal utilization of the so called achievable budget targets. Alternative voice is that budgetary slack is often rewarding for the managers and also for the organization, serving as motivation for efficient utilization of resources and meeting the targets of the organization. However, the relationship between budgetary slack and management control mechanism underlies budgetary slack as the outcome of either tight budgeti ng or lack of budgetary supervision. In addition to that, budgetary slack are also used as management control mechanism. Against this backdrop, the objective of the paper is to review the existing image and practices of budgetary slack as a mechanism of management control and the role of budgetary slack that impact on the behavior of managers. For that end the paper in the beginning details out the conceptual scheme of budgetary slack and the factors and strategies to create budgetary slack. It reviews the linkages between management control mechanism and budgetary slack in the next section. Then, the paper importantly deals with the role of budgetary slack on the behavioral pattern of the managers. Finally the paper ended with discussing some ways to enhance he positive functioning of budgetary slack to control unethical practices and increase accountability and transparency of the management. The Concept of Budgetary Slack Budgetary slack in its simplest form, as in the lexicon of advance accounting, is defined as the difference between an actual budget figure and an easily obtainable budget figure. When a manager controls budget resources more than optimal to accomplish his or her objectives, then the manager creates a condition of budget slack (Kren, 2003). For instance, budget slacking may take the form of underestimated performance capabilities, understated revenues or overstated expenses over a projected period of time. The official terminology of CIMA considers that slack in the budgeting process occurs if there is an intentional underestimation of revenues or overestimation of expenses by the managers (Jia, 2007). Payes (1989) emphasizes on the issue of performance in defining budget slack. According to his perspective, the difference between a division’s expected performance capability and a participatively-set performance standard or target creates budgetary slack. Budget slack is the difference between the resources allocated or available to a division and those resources needed to achieve a budget-set or output target. Becker and Green (1962) and Schiif and Lewin (1970) advocated that for slack to occur participative budgeting is a necessary condition. Budget slack should be distinguished from two related concepts in the accounting management literature: ‘organizational slack’, and ‘budget achievability’. Organizational slack which serves as a positive function by absorbing fluctuations in an uncertain environment refers to the safeguard measures taken by the authorities to reduce the harmful effects of uncertain conditions on which the firms function (Cyert and March, 1963). Quite similarly, ‘budget achievability’ reduces the risk of dysfunctional subordinate behavior by increasing predictability of earnings, and reducing time spent on control of profit center operations (Merchant and Manzoni, 1989). The differences between budget slack and these two concepts is that budget slac k is concealed from superiors and exceeds allowable levels. Other views on the definition of budget slack are mostly concerned with managers’ effort to choose a more easily attainable budget standard against which subordinates’ performances will be evaluated (Jawarski and Young, 1989), or with managers’ desire to create protection from uncertainties by absorbing fluctuations (Cyert and March, 1963).

Economics Essay Example | Topics and Well Written Essays - 750 words - 13

Economics - Essay Example tes are monitored and patterns are formed depending on the changes within the rate; those that monitor the rate trying to detect and understand the ways that the levels increase or decrease, or why there are so many or so few people that are unemployed and to the reasons behind those factors. The inflation rate is the measure of the increase of a price index. The rate of decrease in the power of purchasing is shown to be equal, or within the same range as the increase of a price index. The interest rate of an item, service, or monetary loan is the percentage of the principle that is paid as interest over a specific duration of time. The interest is involved in the inflation rate of an item as it adds or subtracts from the overall price index. The circular flow diagram illustrates the interaction of households, government, and business by showing how each of them influence the other and progress the workings of each other. The diagram shows the chain reaction that they all cause for each other, how the individual benefits the whole. The clockwise flow of the products, goods, and services are equally balanced by the counterclockwise flow of payments; everything is done in a pattern that can decrease or increase. Households purchase from businesses that get their products from their producers. The government falls into place when they charge taxes on the items being produced by companies and bought by consumers, or the households. Firms that are involved in this circle make factor payments, which include wages, interest payments, rent, and royalties in exchange for their labor services and any resources that they may buy. The circular flow diagram shows how each factor of the chart needs each other factor to function properly and to maintain business; it shows action and reaction in regards to consumerism. The circular flow chart is given its name because of this pattern, the continuous flow that these factors involve themselves and each other

Ethics and Values Case Study Example | Topics and Well Written Essays - 1000 words

Ethics and Values - Case Study Example Confidentiality is an imperative standard in nursing ethics; however it might be overruled in certain situations. Generally, revelation of confidential information with the consent of the patient is not deemed to be a violation of confidentiality. However, the quandaries of safeguarding confidentially occur in those circumstances when the patient does not provide the approval to disclose. In such cases, the ethics of confidentiality clashes with a rationale of harm prevention (Badzek, Mitchell, Marra, & Bower, 1998). Case in Question: Application of Ethical Theories and Principles The case under discussion presents a quandary in terms of maintenance of confidentiality and prevention of harm to the patient. In such a situation, on one hand the physician owes the obligation of confidentiality and on the other he has to shelter the patient from harm. Since the patient belongs to a culture where the males make the decisions regarding health care, the physician should try to persuade the patient about the necessity of disclosure of her disease to her family. If in case, the patient does not agree for the disclosure, the physician would have no other option than to disclose the matter to the patient’s family. ... The ethical theories and decision-making models attempt to characterize the boundaries of morally satisfactory actions and clarify the guiding principles for making resolutions within those boundaries. The two most common approaches in the process of ethical decision making are the utilitarianism theory and the deontological theory. The utilitarianism theory also known as the ‘consequentialism’ was formulated by Jeremy Bentham and John Stuart Mill. This theory characterizes the ethical goodness of acts by their outcomes (Jamieson, Smart, and Williams, 1973).  The utilitarianism theory differentiates between good and bad act on the basis of the contentment produced by the outcomes of the acts. According to this theory those acts are considered to be correct that generate maximum contentment for the utmost number of people. Thus, the utilitarianism theory prescribes that, once in a while, certain good be forgone for the overall good of larger number of people. The deonto logical theory is often referred to as the theory of duties and was formulated by Immanuel Kant. This theory differentiates between right and wrong by accentuating on the observance of duty as the chief indicator of moral rightness (Frankena, 1973).  The actions and behaviors are considered to be right or wrong on the basis of the intentions behind those actions and not by the end results. Thus, as opposed to exploring the outcomes of actions as in the case of utilitarianism theory, as per the deontological theory the selection of the act is examined. The belief of respect for another individual is intensely entrenched in the deontological theory, which results in the notion