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BUDGETING AND FORECASTING: IMPACT OF INTERNATIONAL FINANCIAL

TOOLS FOR BUSINESS GROWTH REPORTING STANDARDS (IFRS)

By: Akash Fernando

When used together, budgeting and forecasting provide a balanced approach to ON FINANCIAL STATEMENTS
financial planning. The budget ensures businesses have a solid financial plan,
while the forecast allows them to adjust and refine that plan as needed.
For example, if a forecast predicts a decrease in sales due to an economic By- Murath Mansoor
downturn, businesses can revise their budget to cut costs or shift investments
to mitigate losses. One of the most notable instance, companies transitioning
impacts of IFRS on financial from local accounting standards
This combination of budgeting and forecasting allows businesses to stay statements is the enhancement to IFRS often face difficulties in
proactive rather than reactive. It provides the flexibility needed to respond to of comparability. Since IFRS implementing new measurement
challenges quickly, while the budget keeps the company focused on long-term is used in over 140 countries, and recognition requirements,
goals. By regularly reviewing and adjusting both the budget and the forecast, companies are required to follow especially when dealing with
businesses can make smarter financial decisions, improve cash flow management, a unified set of standards, making complex financial instruments or
it easier to compare financial
leasing arrangements. The need
and identify opportunities for growth. performance across borders. for enhanced disclosure under
For investors and stakeholders, IFRS may require companies to
this uniformity improves their invest in training and systems to
ability to assess and make comply with the new reporting
informed decisions about global requirements.
HOW BUDGETING AND These predictions can be based on WHAT IS FORECASTING?
FORECASTING WORK TOGETHER sales trends, economic conditions, Forecasting, on the other hand, is the companies. Companies operating
or seasonal changes. Forecasting internationally, therefore, benefit Furthermore, IFRS emphasizes
Budgeting and forecasting are two practice of estimating future financial from reduced complexities when fair value accounting, which can
sides of the same coin when it helps businesses stay agile, allowing outcomes based on historical data, preparing consolidated financial introduce volatility in financial
comes to financial planning. While them to make quick adjustments if market trends, and economic factors. statements, as they no longer statements. For example, under
budgeting is a fixed financial plan that the market shifts or if they experience Unlike budgeting, which is more need to convert financial data IFRS, certain assets and liabilities,
helps businesses allocate resources unanticipated changes in revenue or static, forecasting provides ongoing from various national standards such as investments and
for the upcoming year, forecasting costs. projections that adapt as conditions to IFRS. derivatives, are measured at fair
provides a flexible, real-time look Budgeting and forecasting are change. It helps businesses anticipate value, which can fluctuate with
at potential future outcomes based essential financial tools that help revenue fluctuations, predict demand Moreover, IFRS enhances the market conditions. This variability
on current trends, data, and market businesses plan for the future for products or services, and plan for can make financial statements
conditions. Together, these tools and achieve sustainable growth. potential risks. transparency and reliability of less predictable and may create
offer a comprehensive approach to Budgeting involves setting a financial financial reporting. By adopting challenges for companies that
managing a business’s finances. plan to manage income and expenses, In conclusion, budgeting and IFRS, companies are required to rely on stable financial reporting
forecasting are powerful tools
while forecasting predicts future that, when used together, help disclose more comprehensive for decision-making.
Budgeting sets the foundation financial outcomes based on trends information about their financial
for financial management by and data. Together, these tools enable businesses remain financially stable performance and position. In conclusion, the adoption of
determining the expected revenue businesses to allocate resources and prepared for the future. Proper This includes detailed notes to IFRS has had a profound effect on
and expenses for the business. It wisely, adapt to changes, and make planning and foresight can lead to the financial statements that financial statements, improving
helps define spending limits, prioritize informed decisions that drive smarter decisions, better growth explain the accounting policies, comparability, transparency, and
investments, and establish financial long-term success. opportunities, and long-term success. assumptions, and judgments consistency in global financial
goals. The budget provides made during the reporting reporting. While it presents
a framework that businesses can process. Such transparency challenges for some companies,
refer to throughout the year, ensuring WHAT IS BUDGETING? increases stakeholder confidence its benefits far outweigh the
they remain on track with their Budgeting is the process of planning and helps reduce the risk of drawbacks, particularly in the
financial objectives. how a business will spend its money financial misstatements or fraud. context of globalization and
over a certain period, usually a year. It also promotes consistency the need for uniform financial
Forecasting, on the other hand, A budget acts like a financial guide in financial reporting practices, reporting standards.
allows businesses to adapt their that helps businesses track their ensuring that similar transactions
strategies based on new information income and expenses. By knowing are accounted for in the
or unexpected changes. Unlike how much money is coming in and same way, irrespective of the
budgeting, which is typically static, going out, businesses can make sure geographical location.However,
forecasting involves continuously they don’t overspend and can focus the adoption of IFRS also
updating predictions about future on their most important needs. introduces some challenges. For
financial performance.

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