CHAPTER 31 Reporing o Managemen Inroducion The success or oherwise of any business underaking depends primarily on earning revenue ha would generae sufficien resources for sound growh. To achieve his objecive, he managemen should discharge is funcions efficienly and effecively. The reporing sysems are highly useful o he managemen for effecive planning and conrol. A regular sysem of reporing is considered as a beer guidance for promp decision making. Hence, i is necessary o have a good managemen reporing sysem. DEFINITION OF MANAGEMENT REPORTING According o Kohler reporing refers o "A body of informaion organized for presenaion or ransmission o ohers. I ofen includes inerpreaions, recommendaions and findings wih supporing evidence in he form of oher repors.", 'Managemen Reporing' may be defined as "A sysem of communicaion, normally in he wrien form, of facs which should be brough o he aenion of various levels of managemen who use hem o ake suiable acion." In oher words he process of providing informaion o he managemen is known as Managemen Reporing. The word "Informaion" refers o he daa processed or evaluaed for a specific purpose. Dr. Maheshwari has also defined Managemen reporing sysem as "an organized mehod of providing each manager wih all he daa and only hose daa which he needs for his decisions, when he needs hem and in a form which aids his undersanding and simulaes his acion." Objecives of Managemen Reporing (1) To obain he required informaion relaing o he business o discharge is managerial funcions of planning. organizing, conrolling. direcing, and decision making ec. efficienly and effecively. (2) To ensure he operaional efficiency of he concern. (3) To faciliae he maximum uilizaion of resources.
676 A Texbook of Financial Cos and Managemen Accouning (4) To secure indusrial undersanding among people who are engaged in various aspecs of work of enerprise. (5) To enable o moivaing improving discipline and morale. (6) To help he managemen for effecive decision making. Essenials of Good Reporing Sysem The following are he essenials of a good managemen reporing sysem : (1) Proper Form: A good repor should have a comprehensive form wih suggesive ile, heading, sub heading and number of paragraphs as and where necessary for easy and quick reference. (2) Conens : Simpliciy is one of he requisies of reporing in relaion o he conens of a repor. Furher he conens should follow a logical sequence. Wherever necessary he conens should be represened in he form of visual aids such as chars and diagrams ec. (3) Prompness : I means ha he sysem should ensure he preparaion and submission of repor a he proper ime. I faciliaes business execuives o make suiable decisions based on quick repors wihou delay. (4) Accuracy: Informaion conveyed should be accurae. This means ha he person responsible for reporing should have sufficien care in preparing he repor as correcly as possible wihin he parameers of possible accuracy in his regard. (5) Comparabiliy : In order o ensure ha he furnished informaion is useful, i is essenial ha repors are also mean for comparison. The repor should provide informaion abou boh he acual and he budgeed performance of he budge period. So ha meaningful comparison can be made o find ou he deviaions and o iniiae appropriae acion. (6) Consisency : In order o make a meaningful and useful comparison, uniform accouning principles and procedures should be followed on consisen basis over a period of ime for collecion, classificaion and presenaion of accouning informaion. (7) Relevancy : The repor should be presened wih relevan daa o disclose he fac in unambiguous erms. Because, inclusion of boh he relevan and he irrelevan daa in he managemen repors may resul in fauly decisions. Therefore, he conens expressed herein should reveal he reporer's greaer consciousness of expression wih reference o lengh and ime in paricular. (8) Simpliciy : The repor should be as far as possible in simple form. In oher words, he repor should avoid echnical jargons, duplicaion of work and presened in a simple syle. (9) Flexibiliy: The sysem should be capable of being adjused according o he requiremen of he users. (10) Cos-Benefi Analysis: Cos-Benefi Analysis should be made and he cos of reporing should commensurae wih he expendiure involved. (11) Principle of Excepion : Since he ime and effor of managerial personel are precious, he principle of managemen by excepion has become he rule of he day insead of excepion. I is necessary herefore o draw he aenion of managemen, hrough repors, only owards excepional maers. (12) Conrollabiliy : I is necessary ha every repor should be addressed o a responsibiliy cenre and analysed he facors ino conrollable and unconrollable separaely. So ha he head of he responsibiliy cenre can be held responsible only for conrollable variance bu no for variances which are beyond his conrol.
Reporing o Managemen 677 Furher, in order o assis he managemen o imiae remedial measures, probable reasons for he facors of unconrollable should also be incorporaed in he repors. Classificaion of Managemen Reporing Basically, here are wo ways o repor o he managemen. They are (1) Oral Repor and (2) Wrien Repor. The Wrien may be classified ino number of ways. The following are he imporan ypes: I. According o Objecs: (A) Exernal (B) Inernal (1) Mean for Top Managemen (2) Mean for Middle Level Managemen (3) Mean for Junior Level Managemen II. According o Period: (1) Rouine (2) Special III. According o Funcions: (A) Operaing (1) Conrol (2) Informaion (3) Venure Measuremen (B) Financial (1) Saic (2) Dynamic
The following char explains his more abou he ypes of reporing : Oral Types of Managemen Reporing Wrien J According o Objecs According o Period According o Funcions Exernal Inernal Rouine Special Operaing Financial To he Top Managemen J To he Middle Level Managemen To he Junior Level Managemen Conrol J Informaion! Venure Measuremen Saic Dynamic
Reporing o Managemen 679 According o Objec or Purposes (A) Exernal : These repors prepared for persons ouside he business such as Governmen. shareholders. bankers. invesors and financial insiuions ec. Exernal usually represen published annual repors. Annual of Trading. Profi and Loss Accouns and Balance Shee of he Indian Companies are o be prepared in erms of Schedule VI of he Indian Companies Ac of 1956. (8) Inernal : Inernal are hose which are prepared for inernal uses of differen level of managemen. I is also called as Managemen. These repors are no mean for disclosure o hose who are ousiders o he business. They do no have o comply wih any sauory requiremens. From he managerial poin of view he repors can be classified ino he following caegories : (1) Repor Mean for he Top Level of Managemen (2) Repor Mean for he Middle Level of Managemen (3) Repor Mean for he Junior Level of Managemen (1) Repor Mean for he Top Level of Managemen Top Level Managemen is concerned wih he formulaing policies planning and seing goals and objecives. This level of managemen consising of he Board of Direcors including Chairman. Managing Direcors. General Manager or any oher chief execuive as he case may be. The repor o his level of managemen should be specifically summarized wih all aspecs of operaing performance ogeher wih a comparison of acuals wih budgeed performance. The usual repors sen o his level of managemen are: (a) on budgeed and acual profi (b) on sales and producion (c) Capial budge (d) Maser budge (e) Periodical financial repors (f) Plan uilizaion repor (g) Machine and labour uilizaion repor (h) on research and developmen aciviies (i) Projec evaluaion repor G) Repor on sock of raw maerials, work in progress and finished goods (k) Overhead cos absorpion and efficiency repors (I) on selling and disribuion overhead. (2) Mean for Middle Level Managemen The Middle Managemen is consiued of he heads of all deparmens such as producion deparmen headed by producion manager. markeing deparmen headed by markeing manager and so on. This level of managemen is concerned wih he funcioning and conrol of heir deparmens. They ac mainly as coordinaing execuives o adminiser policies direcly hrough operaing supervisors and evaluae heir performance. Hence. hey may require more deailed informaion abou heir deparmens and a frequen inervals. Generally. he middle level managemen should receive he following repors a differen inervals:
680 A Texbook of Financial Cos and Managemen Accouning (a) Purchase Manager: (1) on maerial price and usage variance (2) on maerial carrying cos, loss of maerial in he sorage ec. (3) on rends in he peraining of various iems of maerials. (b) Maerials Manager: (1) on sock of raw maerials, work in progress and finished goods (2) on maerial wasage and losses (3) on sock of maerials planning and conrol (4) on level of maerials sock a he sores (5) on surplus and deficiency repor. (c) Producion Manager: (1) on budgeed and acual producion (2) on overime work and ideal ime (3) on labour uilizaion saemen (4) on machine uilizaion saemen (5) on scrap producion cos (6) on any acciden causing dislocaion of aciviy. (d) Sales Manager: (1) on budgeed and acual sales (2) on sales efficiency (3) on orders received and orders execued (4) on cash sales and credi sales (5) on sock of finished goods (6) on marke share and marke poenial (7) on sales promoion efficiency. (3) Mean for Junior Level Managemen The lower level managemen is direcly responsible for execuing various policies assigned by op managemen. This level of managemen is consiued of Foremen, Supervisors and secional in charges ec. They are in ouch wih he day-o-day performance of heir secion. The repor mean for his level are mainly in erms of physical unis. The usual repors sen o his level are : (1 ) on labour efficiency variance (2) on ideal ime, overime and machine uilizaion (3) on maerials usage variance (4) on credi collecions and ousanding