Preparing the budget according to international standards
The budget is a pivotal tool in financial planning and the prudent management of resources. Its role extends beyond estimating revenues and expenses; it serves as a monitoring and strategic tool that ensures the efficient and sustainable achievement of the organization's goals. Preparing the budget according to international standards contributes to enhancing transparency, improving the quality of financial decisions, and increasing the level of trust among investors and regulatory bodies.
First: The concept of the budget according to international standards
According to best international practices, the budget is defined as a future financial plan prepared for a specific period, based on realistic assumptions, and built on historical data and accurate financial analyses, while adhering to international accounting principles such as continuity, prudence, and comparability.
Second: The reference framework for preparing the budget internationally
Leading global institutions rely on several frameworks and standards when preparing budgets, the most prominent of which are:
International Financial Reporting Standards (IFRS) to ensure consistency of financial estimates with financial statements.
Practices issued by the Institute of Management Accountants (IMA) regarding planning and control.
Guidelines for financial governance issued by the Organisation for Economic Co-operation and Development (OECD).
Third: Steps to prepare the budget according to international standards
1. Analyzing past financial performance
The budget preparation begins with studying historical results and analyzing variances between planned and actual figures, aiming to identify strengths and weaknesses and improve the accuracy of future estimates.
2. Defining financial assumptions
Assumptions include inflation forecasts, exchange rates, revenue growth, and market changes, with documentation of these assumptions to ensure transparency and review.
3. Preparing the revenue budget
Revenues are estimated based on market data, operational capacity, and pricing strategy, while avoiding exaggeration and emphasizing the principle of conservatism.
4. Preparing the Expense Budget
Expenses are classified into operational and capital, and linked to strategic objectives, taking into account efficiency and rationalizing spending.
5. Preparing the Cash Flow Budget
It is one of the most important elements of the budget according to international standards, to ensure the institution's ability to meet its financial obligations and achieve cash stability.
6. Review and Approval
The budget is subject to review by senior management and may require the approval of the board of directors, especially in large companies and institutions subject to governance.
Fourth: Basic Principles to Adhere To
Realism in estimation and avoiding inflation of numbers.
Flexibility to accommodate economic changes.
Measurability and comparability between financial periods.
Accountability and control through clear performance indicators.
Fifth: Common Mistakes to Avoid
Total reliance on historical data without considering future variables.
Neglecting the impact of inflation and exchange rate fluctuations.
Failure to link the budget with the strategic plan.
Weak periodic follow-up and unjustified deviations.
Sixth: The Role of the Budget in Enhancing Governance and Sustainability
Preparing the budget according to international standards helps improve the efficiency of financial governance, achieve optimal resource utilization, and support financial sustainability, thereby enhancing stakeholder confidence and supporting the institution's long-term growth.