Post-Audit Procedures in Capital Budgeting: Importance and Purposes

Substantive Purposes for Conducting Post-Audit Procedures in Capital Budgeting Situations

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Question

Which of the following are substantive purposes for conducting post-audit procedures in capital budgeting situations? Choose the best answer.

I. Improving forecasts -

II. Shifts in the Security Market Line

III. Improving operations -

IV. Controlling management -

V. Adhering to Bond Covenants -

VII. Ensuring adherence to governmental guidelines for performance presentation

Answers

A. I, III, IV

B. I, II, III, IV, VII, VIII

C. I, III, IV, VIII

D. I, III

E. II, IV, VIII

F. I, V, VII, VIII

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Explanations

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A. B. C. D. E. F.

An important aspect of the capital budgeting process is the post-audit, which involves comparing actual results with those forecasted and determining why any discrepancies exist. The post-audit process has two main purposes. First, the post-audit process is used to improve the forecasting capacity of the firm. Second, this process is used to improve the operations of the firm. "Shifts in the Security Market Line" has little to do with the post-audit process. Additionally, remember that aside from AIMR PPS and other suggested performance presentation guidelines, there are no real "guidelines for research and performance presentation."

There are certainly no "governmental guidelines" for performance presentation; therefore, answer VII is incorrect.

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