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PART 1: FINANCIAL REPORTING, PLANNING,

PERFORMANCE, AND CONTROL

STUDY UNIT EIGHT

B. Planning, Budgeting and Forecasting
(30% - Levels A, B, and C)

PREPARED BY
sameh Y. El lithy, CMA, CIA.

Sec.B. Planning, Budgeting and

© Sameh . Y.El lithy, CMA, CIA. Forecasting
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Budgeting Methodologies

a. Annual business plans (master budgets)

b. Project budgeting
c. Activity-based budgeting
d. Zero-based budgeting
e. Continuous (rolling) budgets
f. Flexible budgeting

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© Sameh . Y.El lithy, CMA, CIA. Forecasting
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Annual business plans (master

budgets)

A budget that consolidates all

budgets into an overall plan and
control document, for a budgeted
period. (Also called a
Comprehensive Budget.) ICMA
Sec.B. Planning, Budgeting and
© Sameh . Y.El lithy, CMA, CIA. Forecasting
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Annual business plans (master budgets)

Annual/master budget—Comprehensive
budget
for a year or less
to show every aspect of the company’s revenue
and cost flows to produce pro forma financial
information.

Sec.B. Planning, Budgeting and

© Sameh . Y.El lithy, CMA, CIA. Forecasting
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Project Budgeting

A budget of costs classified by

resources and function for a
specific project over the project’s
life, which may span several
operating budget time periods.
ICMA
Sec.B. Planning, Budgeting and
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Project Budgeting

Used when a project is completely separate

from other elements of a company or is the
only element of the company (i.e.,
construction of a building).
The time frame is the duration of the project.

Sec.B. Planning, Budgeting and

© Sameh . Y.El lithy, CMA, CIA. Forecasting
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Activity-Based Budgeting

An approach to budgeting that

involves quantifying activities and
processes and forecasting their
costs in order to achieve strategic
goals and improve performance.
ICMA
Sec.B. Planning, Budgeting and
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Activity-Based Budgeting

Focuses on activities instead of departments

or products.
Each activity is matched with the most
appropriate cost driver, which is any volume-
based or activity-based unit of measurement of
the cost of a job or activity needed to sustain
operations.
 The time frame is usually short term but
continuous.

Sec.B. Planning, Budgeting and

© Sameh . Y.El lithy, CMA, CIA. Forecasting
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Zero-Based Budget

Preparing a budget from the ground

up, as though the budget were being
prepared for the first time. Alternative
means of conducting activities and
alternative budget amounts are
evaluated. ICMA
Sec.B. Planning, Budgeting and
© Sameh . Y.El lithy, CMA, CIA. Forecasting
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Zero-Based Budget

Focuses on constant cost justification of

each and every item in a budget.
Managers must conduct in-depth reviews of
each area under their control to provide such
justification instead of merely taking
historical figures and making minor
adjustments.

Sec.B. Planning, Budgeting and

© Sameh . Y.El lithy, CMA, CIA. Forecasting
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Continuous (rolling) Budget

A moving projection of financial operations for a

series of weeks, months, or quarters immediately
ahead. At the end of each period, the portion of
the projection then lapsed is removed and a new
projection for a period of similar length is added
to the series. (Also called Continuous Budget.)
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© Sameh . Y.El lithy, CMA, CIA. Forecasting
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Continuous (rolling) Budget

Adds a new period onto the budget at the end

of each period so there are always several
periods planned for the future and the
budgets remain up to date with the operating
environment.
The time frame for this budget always
remains the same since one period drops off
as another is added.

Sec.B. Planning, Budgeting and

© Sameh . Y.El lithy, CMA, CIA. Forecasting
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Flexible Budgeting

A budget in which the budgeted

amounts may be adjusted to any
activity level. ICMA

Sec.B. Planning, Budgeting and

© Sameh . Y.El lithy, CMA, CIA. Forecasting
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Flexible Budgeting

A budget in which the budgeted amounts may

be adjusted to any activity level.
Only the variable costs are adjusted; fixed
costs remain unchanged.
The most common use of a flexible budget is
to show the budget that would have been
made if the organization had matched its
sales forecast exactly.

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End

Sec.B. Planning, Budgeting and

© Sameh . Y.El lithy, CMA, CIA. Forecasting