Question

Chapter 16 Managerial Control

1. Explain the four major steps involved in the control cycle.
2. Explain the differences between internal and external audits.
3. Describe the various types of organizational budgets.

Answer 1

The four major steps involved in the control cycle are as follows:

• Establishment of standards for measuring performance: This step includes developing and documenting methods and standards for measuring performances in a company. It helps in measuring responsibilities and tasks effectively.
• Measuring Performance: It incudes measuring the performance in a regular, consistent manner in order to facilitate proper data acquisition. It provides substantial information to the management in order to make adjustments to their protocols.
• Matching performance with standards: This step includes comparing the results with defined standards in order to know which policies need abandon and which procedures require modification.
• Taking corrective action: In this step, company uses the gathered information to take a corrective action. They take actions which provide best solution to the problem.

The differences between internal and external audits are as follows:

• Internal audits can be described as ongoing audit function needs to be performed within an organization by internal department of the organization. On the other hand, External audits can be described as audit function which needs to be performed by independent body outside the organization.
• Internal audits helps in reviewing routine activities whereas external audits helps in analysing and verifying financial statement of the company.

Various types of organizational budgets are as follows:

• Master Budget: It is an aggregate of individual budgets of the company which were designed in order to present the complete picture financial health of the company.
• Operating Budget: This budget is an analysis and forecast of projected expenses and incomes over specified period of time.
• Cash flow budget: This budget helps in projecting when and how cash comes in and flows out in specific time frame during the business.
• Financial budget: It presents the strategy of the company for managing its income, assets expenses and cash flows.
• Static budget: It is a fixed budget that changes with the changes in the factors suh as revenue or sales volume.