Management Reporting PDF Guide

MANAGEMENT REPORTING ​ refers to the process of collecting, analyzing, and presenting data to help managers make informed decisions. ​ It is part of the management control system which provides adequate business information to various levels of management in the forms of reports an...

MANAGEMENT REPORTING ​ refers to the process of collecting, analyzing, and presenting data to help managers make informed decisions. ​ It is part of the management control system which provides adequate business information to various levels of management in the forms of reports and statements at regular intervals. ​ According to Eric Kohler, management reporting refers to: ​ “ A body of information organized for presentation or transmission to others. It often includes interpretations, recommendations and findings with supporting evidence in the form of other reports.” ​ These reports are not mandatory and is for internal use only. ​ Instead of an overall evaluation of the company, management reporting is focused on segments of the business. What is the difference between management reports and financial reports? FINANCIAL REPORTING ​ It is compliance oriented and is used for external purposes. ​ It encompasses the standard weekly, monthly, and quarterly reports that companies receive each month which include: -Profit and Loss Statement -Statement of Financial Position -Statement of Cash Flows ​ These reports are mandatory for all businesses. ​ These reports reflect the financial standing of your business at a specific point in time. ESSENTIALS OF GOOD REPORTING SYSTEM 1. Proper Form - A good report should have a comprehensive form with suggestive title, heading sub heading and number of paragraphs as where necessary for easy and quick reference. 2. Contents - Simplicity is one of the requirements of reporting in relation to the contents of a report. Further the contents should follow a logical sequence. Wherever necessary, the contents should be represented in the form of visual aids such as charts, diagrams, etc. 3. Promptness- It means that the system should ensure the preparation and submission of reports at the proper time. It facilitates business executives to make suitable decisions based on quick reports without delay. 4. Accuracy- Information conveyed should be accurate. This means that the person responsible for reporting should have sufficient care in preparing the report as correctly as possible within the parameters of possible accuracy in this regard. 5. Comparability- In order to ensure that the furnished information is useful, it is essential that reports are also meant for comparison. The report should provide information about both the actual and budgeted performance of the budget period. 6. Consistency- In order to make a meaningful and useful comparison, uniform accounting principles and procedures should be followed on a consistent basis over a period of time. 7. Relevance- The report should be presented with relevant data to disclose the fact in unambiguous terms. Because, inclusion of both the relevant and the irrelevant data in the management reports may result in faulty decisions. 8. Simplicity- The report should be as far as possible in simple form. In other words, the report should avoid technical jargons, duplication of work and be presented in a simple style. 9. Flexibility- The system should be capable of being adjusted according to the requirement of the users. BENEFITS OF EFFECTIVE MANAGEMENT REPORTING 1.​ Improved decision-making 2.​ Improved management effectiveness 3.​ More efficient use of resources in the delivery of organization services 4.​ Increased confidence in the quality management decisions by agency and staff 5.​ Improved responsiveness to issues as they arise WHY YOUR BUSINESS NEEDS BOTH FINANCIAL AND MANAGEMENT REPORTING? ​ If you do not receive management reporting each month, you could be missing out on information that can help your company grow or prevent you from implementing costly programs that do not provide ROI. ​ Your business needs financial reporting for compliance, making sure the numbers are adding up and to prevent cash flow problems. You also need management reporting so you can make better business decisions backed up by solid data. HOW WILL YOU CHECK IF YOUR FINANCIAL STATEMENTS ARE CORRECT? ​ BALANCE SHEET ​ Negative Balances ​ Misapplied Payments ​ Rising Debt-to-Credit Ratios ​ INCOME STATEMENT ​ Big profit / Small Cash Flow ​ Decreasing Non-operating income ​ CONSIDER THE ACCOUNTING METHODS ​ Cash Basis Accounting ​ Accrual Basis Accounting BUDGETING ​ a realistic plan expressed in quantitative terms for a certain period of time. Budgeting Report ​ shows the total expenses the company has spent in a particular period. Budgeting and Forecasting ➔​ Forecasting - predicting the revenue that the business will achieve in a specific period. ➔​ Budgeting - imply planning how and where to allocate resources according to the business goals. Budgets are plans expressed in monetary terms Budgetary Control ​ a means by which the actual state of affairs is compared with the budget so that appropriate action may be taken about any deviations before it's too late. Budget Center ​ Lowest level in an organization for which detailed costs are budgeted. Budget Committee ​ Composed of executives in charge of major functions of the business and includes the sales manager, human resources manager, finance manager, production manager, etc. Key management persons - responsible for the overall policy matters relating to the budget program and for coordinating the preparation of the budget itself. ADVANTAGES OF BUDGETING ​ Compels and motivates management to make an early and timely study of its problem. ​ Provides a plan for intelligent use of resources and effective prevention of waste. ​ Develops an attitude of cost-consciousness. LIMITATIONS OF BUDGETING ​ Not exact science, used approximations and judgements. ​ Budget takes time. ​ Employees may not be motivated to support the budget if they feel it is unrealistic or unattainable. Types of Budget and Other Budgeting Concepts 1. The Master Budget ​ represents a series of interrelated budgets for all activities of the organization for the budget period. ​ a master budget is the central financial planning document that includes how a company will spend and how much it expects to earn in a fiscal year. Three Main Categories of Master Budget: 1. Operating Budgets 2. Capital Expenditures Budgets 3. Financial Budgets 2. Continuous (Rolling Budget) ​ a budget that is revised on a regular (continuous basis) ​ For example, a company's 2023 annual budget will become a rolling budget if, in March 2023, it adds the budget for February 2024 (to replace the February 2023 budget). At this point, the rolling budget will cover all revenue, expenses, and profits from March 1, 2023, through February 29, 2024. 3. Fixed Budget ​ a budget based on only one level of activity (sales or production volume) ​ To illustrate a fixed budget, let's assume that a company pays a 5% sales commission on all of its sales. If the company prepares a fixed budget and it is projecting sales of $1 million, the budget for sales commissions will be fixed at $50,000. 4. Flexible Budget ​ a series of budgets prepared for many levels of activity. It is a set of alternative budgets at different expected levels of activity. ​ An example of a flexible budget would be a business whose rent is always the same (a fixed cost) but whose inventory costs fluctuate (a varying cost) based on sales. The business could use a flexible budget to help plan its finances. 5. Incremental Budgeting ​ a budgeting process wherein the current period's budget is simply adjusted to allow for changes planned for the coming period. ( the previous period's budget is used as a base, and incremental changes such as increases or decreases are made for the new budget period. ) ​ For example, if a department had a budget of $1,000,000 last year, and a 5% increase is applied due to inflation, the new budget would be $1,050,000. 6. Zero-based Budget ​ activities to be incurred are to be prioritized based on its relevance in line with a goal in the coming period without regard to past experiences or present conditions. 7. Life Cycle Budget ​ costing is done over the entire life span of a product starting from its period of conception to infancy, growth, expansion up to maturity. ​ For example, a company looking to purchase a new piece of machinery might look not only at the initial purchase price but also the energy efficiency, the cost of any needed parts or maintenance, the estimated lifespan of the machine, and the disposal cost at the end of its life.