Capital Budget Post Auditing Process - CFA® Level 1 Exam Preparation

Capital Budget Post Auditing Process

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Question

All of the following comments about the capital budget post auditing process are correct EXCEPT:

Answers

A. After the initial capital budgeting decision is made, the company should follow up and compare the actual results to the projected results.

B. The project managers should explain large variances (projection versus actual).

C. The function of the post audit includes improving forecasting and operations.

D. One of the purposes of the post-audit process is to limit risky projects.

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Explanations

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A. B. C. D.

The role of the post-audit process is to follow-up on capital budgeting decisions and to track results. The process is not meant to limit the capital projects; the company will still want to accept projects based on the decision rules for net present value (NPV), internal rate of return (IRR), and other valuation methods (using internal and external benchmarks).

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