ABSTRACT

This chapter shows what I believe to be the major issues in the present accounting theory of budget and standard cost control. It starts with some data from the history of budgeting on both sides of the Atlantic. It analyzes the various functions and the various types of budgets; the relationship of budgets to non-financial efficiency standards and to costing systems. It distinguishes between the ‘European’ and the ‘American’ system of budgeting. It deals with variable versus fixed budgets and with a classification of budget variances; with management information systems and cost reduction drives; and with the role of the budget staff and the line departments in a budget system. This chapter also highlights some-assumptions in the accounting theory of budgets about human behavior. I am trying to show that although accounting theory is ‘neutral’ about human behavior and accepts psychological data as fixed constraints, it does, in fact, not escape from making assumptions here. In as far as these may be false, the value of the accounting theory built on it is suffering.