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The budgeting processes of a company and a government have several differences. Governmental budgeting is less flexible compared to business; it requires allocating resources regarding various federal agencies. Authorities adopt top-down budgeting considering fiscal stress (Hendrick, 1989). A top-down approach means that the government implements the budgeting process with minimal involvement of lower-level departments (Hendrick, 1989). This approach makes it possible to fully consider the goals, reduce the time spent, and avoid the problems associated with the coordination and aggregation of individual budgets.
All official entities require formal budgeting; the process consists of submitting the budget request, assessing the appropriateness of sums, and issuing the budget documents, becoming legally binding. Therefore, the budgeting processes of a company it is not required by law. Moreover, large enterprises use incremental budgeting; the budgets for this model are based on the actual results of the last year, the expected growth in indicators, and inflation next year (Hendrick, 1989). Furthermore, companies adopt bottom-up budgeting, a more democratic method, when operational personnel is involved in the budgeting process (Tan & Low, 2017). The heads of departments draw up their budgets and agree on critical indicators, after which the budgets are combined into one financial plan.
Reference List
Hendrick, R. (1989) ‘Top-down budgeting, fiscal stress and budgeting theory’, American Review of Public Administration, 19(1), pp. 29-48
Tan, B. S. and Low, K. Y. (2017) ‘Budgeting practice in Singapore – An exploratory study using a survey’, Asia Pacific Management Accounting Journal, 12(1), pp. 77-103.
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