Question Two (Total mark: 4 marks, word limit: 400 words)

A firm of solicitors is preparing its budgets for 2019. The structure of the firm is that it has a managing partner who is responsible for: 1) client and staff management; 2) the firms accounts; and, 3) compliance matters. There are three other partners who each take responsibility for case matters depending on the branch of law that is involved in each case. For a number of years the managing partner has prepared the budgets for the firm. These include budgets for fee income and costs analysed by each partner, and a cash budget for the firm as a whole. The firm has overdraft facilities which are renewable in June each year and sets cash balance targets for each month that reflect the seasonality of some of its work. At the end of each month there is a partners meeting at which the managing partner presents a statement that compares the actual results of the month and the year to date with the corresponding budget. At this meeting all partners are asked to explain the reasons for the variances that have arisen. The managing partner recently attended a course on Budget Planning and Cost Control at which the presenter argued that each of the partners in the firm should be involved in the budget-setting process. The managing partner was not convinced by this argument as she believes that this could lead to budget manipulation.

Required:

Discuss TWO potential beneficial consequences and TWO potential adverse consequences of involving the firms other partners in the budget setting process of the firm.