Answered: often an arduous process, however, and…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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The budgeting process is an essential component of management control systems, as it provides a system of planning, coordination and control for management. It is often an arduous process, however, and often strikes dread in the hearts of those involved in budget preparation.In the public sector, the budgeting process can be even more difficult, since the objectives of the organization are more difficult to define in a quantifiable way than the objectives of a private company. For example, a private company's objectives may be to maximize profit. The meeting of this objective can then be set out in the budget by aiming for a percentage increase in sales and perhaps the cutting of various costs. If, on the other hand, you are budgeting for a public sector organization such as a hospital, then the objectives may be largely qualitative, such as ensuring that all outpatients are given an appointment within eight weeks of being referred to the hospital. This is difficult to define in a quantifiable way, and how it is actually achieved is even more difficult to define. 2 This leads onto the next reason why budgeting is particularly difficult in the public sector. Just as objectives are difficult to define quantifiably, so too are the organization’s outputs. In a private company the output can be measured in terms of sales revenue, for example. There is a direct relationship between the expenditure that needs to be input in order to achieve the desired level of output. Therefore, budgeting naturally focuses on inputs alone, rather than the relationship between inputs and outputs. i) In Kenya there has been a debate that due to the implementation of the devolved system of government, performance based budgeting can be suitable for this type of government system. Discuss ii) Discuss the challenges the Kenyan government faces in the budgeting process. iii) In developing countries like Kenya, there has been a discussion of a high number of people advocating for more deregulation of the market in the pretext that the market is an efficient allocator of resources. Through budgeting, resources will be allocated to the areas of need. Do you think there is sufficient justification for the existence of the public sector? QUESTION TWO An effective public sector activity strengthens governance by materially increasing citizen’s ability to holds their public sector entity accountable. The audit activity must be empowered to act with integrity and produce reliable services. Identify and discuss six key elements of effective public sector audit activities. b) According to the PFM ACT 2012 identify and explain the budgeting process in Kenya. c) Why is it necessary to effectively manage public debt? Explain ways that this can be managed.

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