Do you need this or any other assignment done for you from scratch?
We have qualified writers to help you.
We assure you a quality paper that is 100% free from plagiarism and AI.
You can choose either format of your choice ( Apa, Mla, Havard, Chicago, or any other)
NB: We do not resell your papers. Upon ordering, we do an original paper exclusively for you.
NB: All your data is kept safe from the public.
ZBB
Zero-based budgeting (ZBB) allows managers to periodically reassess ongoing activities and programs in comparison with new projects, based on criteria of future costs and expected results. The objective of using this approach is to make timely decisions based on the most reasonable financial calculations instead of continuing to finance projects that have questionable forecasted results (Warren et al., 2018). For instance, if $100 million was spent to build an automobile assembly plant over the past five years, and new forecasts show low demand for cars in the future, the company, traditionally, may either sell created capacities or re-profile them (Warren et al., 2018). ZBB, however, allows making changes to the project, to technological equipment, and to the design of products that were to be produced.
Primary procedures involved in ZBB are the identification of decision units, making decision packages, ranking decision packages, allocation of available resources, and monitoring and control. A decision unit can be an independent activity or a complete project (Warren et al., 2018). It is then broken down into smaller packages, each of which has a priority rank (Warren et al., 2018). Funding decisions are made during resource allocation, and the control step monitors the performance and output of each package.
Main advantages of ZBB are related to company expenses – in zero-based budgeting, all managers have to justify costs for each new period, because every period has its own budget. Also, ZBB ensures that legacy expenses are checked for more efficient allocation of resources (Warren et al., 2018). However, there is a significant drawback of using ZBB – because a new budget is created for every new period, managers may start pursuing only short-term goals.
ABB
Activity-based budgeting (ABB), as the name suggests, is a system that is based on the identification of activities that incur costs. After assessing each of the identified items and thinking of ways of making them more efficient, a budget is developed. ABB consists of rigorous processes, and its objective is to decrease costs and maximize profits (Warren et al., 2018). ABB is based on activity-based costing and has similar procedures.
Overall, the ABB process can be divided into three steps. First, activities have to be identified – these are the cost drivers that may generate revenue or incur costs (Warren et al., 2018). Then, for each activity detected, the number of expected units is recorded (Warren et al., 2018). The last step is calculating the cost per each unit of activity and multiplying that with the expected number of units.
For instance, if a company expects 23 thousand orders next year, and it knows that it will take a dollar to process each request, the budget will be comprised of 23 thousand dollars dedicated for order process activity. This approach can be contrasted with traditional budgeting, in which a company may estimate an increase in the cost of order processing by 10% and consider that value for a future budget. The main advantage of using ABB is more granular control over the budgeting process (Warren et al., 2018). Instead of relying on an expected increase in costs, managers analyze the current and expected costs of activities and use the data to make a more accurate and efficient budget (Warren et al., 2018). Disadvantages are associated with more time and resources needed to maintain ABB budget.
Capital Projects
A capital project is a long-term venture that requires a significant amount of funding. Its primary purpose is to acquire, build, or improve a capital asset. Therefore, it requires much more planning, risk management, and financial resources (Warren et al., 2018). For instance, the development of infrastructure or building a new factory can be considered a capital project. In terms of accounting, capital projects are associated with products that depreciate (Warren et al., 2018).
Therefore, accountants need to record costs and expenses and amortize the costs before the product fully depreciates. From a government’s perspective, a capital project may be an infrastructure project like building a railway or a road. However, corporations also often start capital projects in order to increase their productional capacities (Warren et al., 2018). For instance, if a manufacturing plant is designed to function for 50 years, the accountant’s role is to allocate necessary resources for a new plant until the expense is fully recognized. Before the project starts, accounting procedures include authorization of capital budget, payroll allocation, and reporting.
Because of the large-scale nature of capital projects, they should be managed accordingly. While resource allocation is significant, it is also critical to adequately manage risks and associated costs (Warren et al., 2018). Another unique aspect of capital projects is how they are funded.
If small projects often rely only on internal financial sources, capital projects may require public funds. Therefore, the accountant’s responsibilities, in the context of the capital project, are expanded by the need to manage funding sources (Warren et al., 2018). Corporations may issue bonds or receive bank loans, and the cost of each of these options should also be researched and analyzed. For instance, bank loans incur charges like the interest that must be paid back.
GAAP and IPSAS
GAAP for Non-profits
Accounting reports are a primary means for demonstrating the financial status of an organization. Reports of non-profit entities are vital for their donors and the government (Bragg, 2017). Also, the government checks accounting reports to ensure that the organization is functioning only for charitable goals (Warren et al., 2018). Generally Accepted Accounting Principles (GAAP) is the most common way for non-profits to track and benchmark their finances (Warren et al., 2018).
The principles are maintained by three separate organizations – the Financial Accounting Standards Board, the American Institute of Certified Public Accounts, and the Securities and Exchange Commission. GAAP is comprised of definitions of accounting concepts and rules by which organizations handle financial reporting (Warren et al., 2018). These reports may be used by donors when deciding which non-profits they want to support. The principles of GAAP are written to increase transparency while keeping costs related to reporting at a minimum.
GAAP has rules for the majority of aspects of a non-profit organization’s accounting. For instance, there is a rule that governs how non-profits manage net assets and restrictions set forward by an asset’s donor (Warren et al., 2018). The rule states that organizations must divide their assets into two distinct categories – assets with no restrictions, and assets with restrictions. This information can be used by the government and new donors if the organization has been using its assets accordingly (Warren et al., 2018). Non-profits also need to provide information about their liquid resources and how they are used to meet organizational needs. This data, according to the pronouncements, should contain both qualitative and quantitative information.
IPSAS for Non-profits
International Public Sector Accounting Standards (IPSAS) is an accrual-based financial reporting framework. Information contained in such statements is beneficial both for decision-making and accountability (Bragg, 2017). While GAAP can be used by both non-profits and commercial organizations, IPSAS is specifically designed for entities whose primary objective is to benefit the public. IPSAS is currently used by a large number of government and intergovernmental organizations, such as UNICEF (Warren et al., 2018). It is comprised of 42 pronouncements that provide guidelines for everything from financial statements to social benefits (Warren et al., 2018). The primary objective of these standards is to improve the quality of reports. In turn, it will lead to more efficient resource allocation by governments.
IPSAS is based on International Financial Reporting Standard (IFRS) – it can be considered that IPSAS is a version of IFRS modified for organizations serving the public sector. Because of this fact, IPSAS has the same characteristics as IFRS (Warren et al., 2018). For instance, like IFRS and unlike GAAP, IPSAS is principles-based. It means that IPSAS is not an exhaustive list of requirements – it gives recommendations on minimum content that should be present in reports.
In many cases, organizations may adopt IPSAS to their needs, and therefore, the presentation of financial statements will differ (Warren et al., 2018). Financial reports, according to IPSAS, should contain a statement of financial position, information about financial performance, data on net assets and equity, cash flow statement, and a comparison between accrual amounts and the published budget.
References
Bragg, S. (2017). Nonprofit Accounting. Accounting Tools.
Warren, C. S., Reeve, J. M., & Duchac, J. E. (2018). Financial & managerial accounting. Cengage Learning.
Do you need this or any other assignment done for you from scratch?
We have qualified writers to help you.
We assure you a quality paper that is 100% free from plagiarism and AI.
You can choose either format of your choice ( Apa, Mla, Havard, Chicago, or any other)
NB: We do not resell your papers. Upon ordering, we do an original paper exclusively for you.
NB: All your data is kept safe from the public.