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Management Accounting, Budgeting and IFRS
Management accounting is the accounting of corporate activity for the presentation of information to top management to make management decisions, and to monitor the results of those decisions.
Primary management reports a rule include:
- the balance sheet statement;
- the liquid balance sheet (company net worth);
- profit and loss statement, broken down by:
- CFR (centre of financial responsibility);
- CFA (centres of financial accounting);
- type of activity;
- product groups;
- revenue items;
- cost items;
- the cash flow statement.
Capability for further data consolidation is normally taken into account in the development of management accounting system architecture. It is also important to consider the fact that management accounting data cannot simply be “downloaded” based on business or current (commercial) accounts. There has to be a separate management accounting scheme, including the corresponding management analytics.
There is a great deal of discussion and opinion on whether IFRS standards need to be used in the preparation of management accounts at a company if IFRS reporting (i.e., reports prepared in accordance with IFRS standards) is not required for shareholders.
This largely depends on the specifics of the business and the information systems already in place (installed) at the company. The practice at ALP Group is to make this decision after a pre-project investigation, conducted by ALP Group specialists and methodologists with experience in building management accounting systems using (developing) internal company standards and IFRS standards.
Generally speaking, the question regarding the implementation and automation of accounts using IFRS standards arises when:
- the company is planning to conduct (or already does conduct) their accounting based on IFRS;
- data consolidation is necessary and the decision has been made to use IFRS standards in setting it up;
- the company plans to construct their management accounting (including their accounting management plan) using IFRS standards.
Budgeting is the planning of company activity with the capability of controlling resources and analyzing results achieved during the course of the plan.
As a rule, a number of requirements are presumed for both budgeting and company management tools:
- forecasting and planning of future financial conditions;
- assurance of satisfaction of key performance indicators for activities;
- delegation of financial authority and responsibility for lower management levels;
- obtaining accurate information on the financial situation of the company;
- monitoring of critically important or limited assets and outflows;
- analysis of the financial situation of the company.
- investigation of the client company’s businesses and development of a “Technical Proposal” that covers the financial structure, the budgeting scheme, types of budgets and their interrelations, budgeting guidelines and description of reports;
- Refinement of the budget model;
- population of the model with data;
- automation and standardization of the process;
- monitoring of the results obtained.
The ALP Group specialists install the management accounting and budgeting systems based on the following configurations using “1C: Enterprise 8”:
- «1С: Consolidation 8»
- designs developed in house;
- configurations developed by 1C partners.