BUDGETING PROCESS AUDIT WORK PROGRAM
The budgeting process is a systematic management tool to express future operational plans for the allocation of
resources toward achieving strategic goals. Practically speaking, the budget is a vehicle for communicating plans
throughout the organization in an orderly manner. Several important and specific management functions are
typically accomplished in the budget cycle, including:
• Controlling spending.
• Predicting cash flow and profits.
• Monitoring progress toward goals.
Understanding the basic process of the budgeting cycle will assist auditors to evaluate the specifics of their
organizational budgeting program. How does the company utilize the budget process? What are the goals and
deliverables? Typically, the general framework and practices in developing and implementing a budgeting
program may include:
PLANNING
• Clearly define the strategic goals before budgeting begins.
• Establish and foster formal and informal channels of communication.
• Communicate goals and strategies to local personnel.
• Improve procedures and reporting tools to ensure information is uniform and accessible.
• Provide training for budget developers to link budgeting tools and impacts to the strategy.
ACTIVITIES
• Gather internal and external information.
• Verify the data sources to ensure completeness and accuracy.
• Create assumptions and estimates.
• Create the sales budget.
• Create the production budget.
Even if a budgeting process is well established, deficiencies in these areas may be the root cause of an
ineffective and inefficient process that is out of alignment with goals. Other critical attributes and risk
considerations for auditors preparing for an organizational budget process review include evaluating the following
characteristics in the context of their organization:
• Linkage of budget development to the corporate strategy.
• Establishment of capital and operating budget horizons consistent with strategic goals.
• Integration of capital and operating budgets in terms of goals and purpose.
• Consolidation of the budget and production plan into one document.
• Management fostering communication to develop and strengthen strategy.
• Utilizing performance measures to mark progress toward goals.
The budgeting process and goals will vary between organizations. For example, some organizations utilize a
continuous budgeting process with quarterly revisions and others as a static benchmark. Therefore, understand
how the budget tool is used for control and effectiveness reasons, identify risks and related management
assertions in the budget process, and tailor your work program accordingly.
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PROJECT TEAM (LIST MEMBERS)
Project Timing Date Comments
Planning
Fieldwork
Report Issuance
AUDIT OBJECTIVES
Objectives Initial Comments
To evaluate the overall process for planning and completing the
budgeting process.
To determine the effectiveness of compliance with established
corporate policies and procedures to ensure that the budget
process is operating as planned.
Time Audit Step Initial Index
Understand the Process
Through individual interviews or small group meetings, develop an understanding
of the key processes and activities that relate to developing and managing the
budgeting process.
• Review policies and procedures for the overall budget planning process.
• Determine if budgeting procedures are periodically updated to be consistent
with changes to the budget review cycle, deadlines and variance reporting,
etc.
• Evaluate the process for answering questions concerning the budgeting
process and related distribution.
• Develop a flow chart of the budget planning, revision and approval process.
Budget Planning & Approval Process
Meet with groups responsible for preparing and aggregating budget information
to determine familiarity and compliance with established procedures.
• To what extent do they understand the policy and procedures?
• Determine if budget personnel are involved in updates to the budgeting
process and related procedures.
Review the budget information from previous periods and compare to policies
and procedures to determine:
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Time Audit Step Initial Index
• Any exceptions
• If guidance given to operating units for budget planning requests is
reasonable, understandable, complete and consistent across operating areas.
Select (on a judgmental basis) several groups for evaluating the budgeting
planning process. Evaluate the following planning areas:
• Preparation of planning data.
• Timeliness of budget planning process, such as training, source information,
submission deadlines, etc.
• The process for budget revision requests.
• Maintenance of version control and back-up data.
Evaluate the process for reviewing, adjusting/updating and approving budgets.
• Determine if submitted budgetary data includes quality control and adequate
supervisory review.
• Evaluate the reasonableness of the preparation and approval processes.
• Review procedures for communicating changes or modifications to the
budgeting procedures, assumptions, expectations to ensure alignment with
those responsible for budget development, and approval.
• Determine if corrective actions and modifications are communicated to ensure
consistency, completeness and accuracy of the budget planning and approval
processes.
Evaluate control procedures for modification of the production system and related
reporting processes used in the budgeting process. Consider the following:
• Access controls
• Report parameters and query access rights.
Review new budget cycle controls and preparation of revised budget instructions
for consistency with changes in business operations.
Determine the appropriateness of the steps taken to generate the budget
throughout the organization, including:
• Designated format of requested data.
− Consistency for comparison purposes
− Allow for consolidation
• Schedule of budget cycle for drafts, approvals, revisions, comparison to
actual, etc.
• Provide underlying assumptions and guidelines for data preparation.
− Interest rates
− Estimated tax rates, including federal, state, municipal, payroll, property,
corporate income, social security tax, etc.
− Inflation rate, GDP, regional economic growth and unemployment rates.
− Capital expenditure limits
− Return on investment (ROI) or return on assets (ROA)
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Time Audit Step Initial Index
• Comparable data set expectations
− Prior years
− Historical trends
− Industry or competitive data
• Description of data detail to be incorporated into related budgets from
respective department, business unit or subsidiary (will be used as
comparison to actual and past performance).
− Sales by period, product, region, territory, salesperson, etc.
− Expense analysis by type, budget period, vs. sales/prior period.
Determine the effectiveness of the management budget control and evaluation
process. Consider the following control procedures:
• Consolidation of the financial statements (based upon sub-process budgets
where applicable) in determining the overall entity budget plan: cash,
earnings, capital expenditures, statement of financial position.
• Review and evaluate all planning operational and business areas for
completeness, comparative properties, reliability and reasonableness
(feasibility).
• Approve the budget and revisions.
• Determine compliance with predetermined constraints established by
management and the board of directors, such as:
− Capital expenditures
− Expected growth rates
− Banking covenants (where applicable)/working capital.
− Turnover ratios: inventory, receivables
− Return on assets
− Competitive and industry expectations
• Summarize the plan for presentation (to and approval by) the board of
directors.
Reporting and Wrap-Up
Draft a final report for manager review and approval.
The draft report should include the following sections:
• Executive Summary
• Objectives & Scope Statement
• Background (in general and for each process)
• Summary of Procedures Performed
• Detailed Findings & Recommendations (organized by area/process/
significance).
• Action Matrix
• Follow-Up Procedures
Submit the draft report to manager.
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Time Audit Step Initial Index
Make final revisions and issue the final report.
Distribute customer satisfaction survey forms.
Finalize working paper documentation related to all work performed. Submit for
manager approval and filing.
Prepare a final time summary and personnel evaluation forms.
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SAMPLE BUDGETING PROCESS FLOW
G Yes
R Approval Presentation
Detailed Exec. to the Board
instructions as to Com
the content of the
budget
Yes
Consolidation
Group
No
Approved
Approved?
Operating
Plan No
Negotiation
Modifications Negotiation
Modifications
D
Budget Preparation
E (department level)
P
A
R
Yes Communicate
T
the Approved
M
Budget
E
N Approved?
T No
Modifications
No
S P
E L
G A Action
M N Budget Budget
E T Preparation Preparation Input
Approved?
N S (plant level) Yes (segment level)
T Output
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