Compare the benefits of the tool for financial reporting purposes. Describe a situation in which the use of your selected tool would be preferred. I did Balanced Scorecard. Put at least references with the answer.

Balanced Scorecard

According to Romney and Steinbart, there are three control methods that may be utilized to alleviate the hazard posed by poorly prepared management reports. Responsibility accounting and flexible budgeting, as well as the balanced scorecard and graphs, are the three instruments used. The balanced scorecard is the way that I would advocate as the most effective for achieving results. A balanced scorecard, according to Romney and Steinbart, is a report that gives a multifaceted view on an organization's performance. Organizations can either have key employees attend a training session to learn how to produce and manage their own balanced scorecard, they can purchase a book and create their own balanced scorecard, or they can hire experts from the Balanced Scorecard Institute to come to their location and assist them in developing and implementing a balanced scorecard (BalancedScorecardInstitute.org, n.d.).

There are four viewpoints of the company measured by the balanced scorecard: 1) financial objectives; 2) customer-related goals; 3) internal operations; and, finally, 4) innovation and learning. The goals established by top management in each of the four perspectives of the balanced scorecard provide management with a far more complete picture of the firm than simply looking at the income statement or the balance sheet. The balanced scorecard allows the organization's management to make changes to its goals if they discover that they are not measuring what they desire. Example: If it turns out that the premise that higher customer happiness would result in increased revenue is incorrect, they can shift their focus to a factor that more closely reflects success in that area.

It was first established as a strategic management tool, but according to Romney and Steinbart, it has also been used to better manage organizational risk through the incorporation of risk-based goals. The following are some examples of dimensional goals to consider:

• Financial
• improve cash flow
• increase profitability
• Customer
• improve customer service
• become lead supplier for most customers
• Internal Operations
• speed of service
• quality of service
• Innovation and Learning
• employee training

According to the assumptions of the above systems, 1) better training will result in increased speed and accuracy in order preparation; 2) improved speed and accuracy in order preparation will result in improved customer service and we will become the lead supplier for most of our customers; and 3) improved customer satisfaction will result in improved cash flow and increased profitability. In this case, the organization is being considered by management rather than simply the financial side.

References

Balanced Scorecard Institute. (n.d.). About the Institute. Retrieved April 24, 2019, from https://www.balancedscorecard.org/About/About-BSI

Romney, M. B., & Steinbart, P. J. (2017). Accounting Information Systems (14th ed.). New York, United States: Pearson Education; Inc.

Responsibility 'Accounting/Flexible Budget

When using management reports for decision making, it is important to consider the context of the data presented. Not all reports demonstrate an unbiased, targeted evaluation of performance. Some factors may lie outside the control of departments/staff involved with the report. "To properly evaluate performance, reports should highlight the results that can be directly controlled by the person or unit being evaluated." (Romney & Steinbart, 2017). This can be done through responsibility accounting, which produces related reports that divide an entity's performance by subunits that most directly control specific activities, improving management of operations. The ultimate goal of responsibility accounting is that employees are only measured against results that are within their control, and every business unit has a manager responsible for performance (Lasker, 2020).

When designing a budget in accordance with responsibility accounting, revenues and expenses must be reported separate for each responsible unit in the entity. Fixed targets are created for each unit, and those predetermined values are compared to actual performance. However, unanticipated factors, both internal and external, may affect budget outcomes and are not taken into consideration of the static metric. This may result in management or staff being rewarded or punished for circumstances outside their control (Romney & Steinbart, 2017).

To mitigate the risk of internal or external factors contributing to unfair reward or punishment of employees or management, a flexible budget should also be incorporated into the responsibility accounting method. Flexible budget amounts are "stated in terms of formulas based upon actual level of activity" (Romney & Steinbart, 2017) rather than static values. Flexible budgets are modified on a constant basis to account for changes in sales activity, labor costs, material costs, and any number of factors. The flexibility to adapt to changes in budget factors is useful to management and investors. Flexible budgets can help an entity adjust for changing costs and profit margins, have better cost controls than a static budget, and contain relevant, current data that managers can use to continually update projections more accurately (Woodruff, 2019).

References:

Lasker, R. (2020, October 6). A beginner's Guide to Responsibility Accounting. The Blueprint. Retrieved November 25, 2021, from https://www.fool.com/the-blueprint/responsibility-accounting/.

Romney, M. B., & Steinbart, P. J. (2017). Accounting Information Systems (14th Edition). Pearson Education (US). https://mbsdirect.vitalsource.com/books/9780134475639

Woodruff, J. (2019, March 4). The advantages of a flexible budget. Small Business - Chron.com. Retrieved November 25, 2021, from https://smallbusiness.chron.com/advantages-flexible-budget-57105.html.