Budgeting is the process ofcreating a plan to spend the money.In otherwords, budgeting is simply a process of balancing our expenses with the income.Most of the people don’t realize that they spend higher than they earn andslowly sink deeper into debt every year. And it is quantitative which couldmeasure the critical activities that should be highly concerned.In the context of budgeting for a company, itis a procedure of preparing a detailed statement of financial results that areexpected for a given time period in the future.
Details are requested due tobudgeting is a thing that they should deeply analyze rather than just quotingthe prices in spend. Hence external party needs huge level of data in order toidentify the pattern before making the budget plan thereby it is better if theprocess can be initiated through the internal budget planners who have hands onexperience about the business.Internal control, as defined in accounting and auditing, is a process for assuring triumph of an organization’sobjectives in operational effectiveness and efficiency, reliable financial reporting, and compliance with laws,regulations and policies. A broad concept, internal control involves everythingthat controls risks to an organization where it systematically facilitates theprocess rather than just contemporary budgeting ways.These internal controlsresponse are at its best when they are applied to multiple divisions and deal withthe interactions between the various business departments. No two systems of internal controls areidentical, but many core philosophies regarding financial integrityand accounting practices have become standard managerial practices.
Thus having better a company’s internal controls, the more reliable itsfinancial reports, and the more confidence you can have in the quality of thecompany’s operations.Because at the budgeting stage, the plannerplans according to her/ his best of knowledge on that particular area andthereby sometimes he/ she might over budgeting, under budgeting or at the rightlevel. Then when the result comes to the actual stage then can be over budgetedand money waste, under budgeted and the work had not been done or sometimes budgetand actual usage will be the same amount. Thereby internalcontrols sometimes works as a standard operating procedures that a company canuse for data analysis and spot troubles as quickly as possible. Accordinglythese controls are mostly useful in four areas such as budgeting, supervision,compliance and theft and fraud prevention.
In the categorization of preventiveand detective internal controls, preventive method is the proactive solutionsproviding option which gives a clue on actual result that it is higher thanwhat is being budgeted. Detective internal controls are the backup proceduresthat ensure the preventative internal controls are operating as intended. Therefore,importance of this internal controls regarding budgeted and actual can beviewed through kinds of further examples such as ensuring reliability andintegrity of financial information where management has records of planningprogressing and monitoring records, previous budget allocation reports, promoteefficient and effective operations which can be measured through realisticbudgets and actual results.Howeverin conclusion, above said importance elaborates best possible opportunitieswhich a company can have through effective measuring mechanism such as internalcontrol which matches budgeting amounts with actual results which mayultimately lead the situation at a win-win cost that every stakeholder behappy.