ACCA Performance Management (F5) Certification Practice Exam

Which of the following is NOT a purpose of budgeting?

1. Communication

2. Control

3. Employee satisfaction

4. Evaluation

The correct answer is: Employee satisfaction

Budgeting serves multiple important functions in an organization, and understanding these purposes can help clarify why employee satisfaction does not align as a primary objective of budgeting. Firstly, one major purpose of budgeting is communication. Budgets are tools that convey the strategic objectives of the organization, translating broader goals into specific financial targets and operational plans. This communication occurs across various levels of the organization, ensuring that everyone understands the goals and expectations. Secondly, budgeting plays a crucial role in control. It allows management to monitor actual performance against planned performance, thereby identifying variances that require corrective action. This control mechanism helps to ensure that resources are utilized efficiently and that the organization adheres to its financial constraints. Another purpose is evaluation. Budgets provide a baseline that helps management assess performance. By comparing actual results to the budgeted figures, managers can evaluate the effectiveness of operations, inform future budgeting decisions, and make strategic adjustments where necessary. While employee satisfaction may be influenced by budgeting indirectly, it is not a direct purpose of the budgeting process. Instead, budgeting primarily focuses on financial management and operational efficiency rather than directly enhancing employee morale or satisfaction.