220 ACCOUNTING FOR MANAGERS
Table 14.14 Retail News Group profit and cash flow
reconciliation
Net profit £8,625
Plus non-cash expense 3,000
Depreciation
11,625
Less increase in working capital –
Debtors 1,000
Inventory 300
Insurance prepayment 3 , 000
4,300
Less increase in creditors 1 , 100
Net increase 3 , 200
Net cash flow from operating activities 8,425
Other outflows of cash –
Capital expenditure 2,500
Income tax 5,000
Dividend 3,000
Loan repayment 1 , 000 11 , 500
Decrease in cash 3,075the environment; inaccurate assessment of the effects of predicted changes; and
forecasting bias.
Lowe and Shaw examined the sources of bias: the reward system; the influence
of recent practice and norms; and the insecurity of managers, arguing that bias may
be a common phenomenon as in ‘the desire to please superiors in a competitive
managerial hierarchy’ (p. 312). They also explained counterbias as ‘the attempt by
other managers to eliminate that part of a forecast which stems from the personal
interest of the forecaster’ (p. 312).
However, there are also problems with aggregation of divisional budgets into
a corporate budget. Berry and Otley (1975) explored the estimation of budget
figures made by individuals at one hierarchical level in an organization, and the
coupling of these estimates to those made at a higher level to show the resulting
bias in estimating that takes place. Otley and Berry (1979) argued that quite
mild deviations from ‘expectation budgets’ at the unit level can produce severe
distortions when budgets are aggregated to the organizational level.
An interpretive or critical perspective is appropriate for a study of budgeting, in
particular because budgets are one of the main sources of power in organizations,
as a result of the influence of accountants over budgetary allocations. Czarniawska-
Joerges and Jacobsson (1989) depicted budgets as:
a symbolic performance rather than a decision-making process; a means of
conversation rather than a means of control; and an expression of values
rather than an instrument for action...Budgeting is seen as a ritual of reason;
budgets are presented according to and conforming with prevailing norms
of rationality. Budgeting is also a language of consensus; there are several