Advanced Several assumptions are commonly made by accountants when preparing or interpreting budget¬ ary information.

You are required to explain why each of the following five assumptions might be made by accountants when designing a system of budgeting, and to set out in each case also any arguments which, in your view, raise legitimate doubts about their validity:

(a) budgeted performance should be reasonably attainable but not too loose, (5 marks)

(b) participation by managers in the budget¬ setting process leads to better performance,

(5 marks)

(c) management by exception is the most effec¬ tive system of routine reporting, (5 marks)

(d) a manager’s budget reports should exclude all matters which are not completely under his control, (5 marks)

(e) budget statements should include only matters which can be easily and accurately measured in monetary terms. (5 marks)

(Total 25 marks) ICAEW Management Accounting