CFA Practice Question

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CFA Practice Question

Which of the following is not one of the primary benefits of conducting a post-audit during the capital allocation process?

A. It will motivate managers and employees to work harder in order to meet the forecasts that were set after consultations with them.
B. It will narrow down the list of projects that management should undertake in the future.
C. It will motivate managers and employees to become more productive, since they know that their performance is being monitored.
D. It will enable senior managers to identify why actual results differ from those they had originally forecast, thus improving their forecasting abilities.
Correct Answer: B

A post-audit is a backward-looking process; it is conducted after a project has been implemented. While managers can improve their forecasting abilities through a post-audit, the decision about which projects to undertake in the future will depend purely on estimates of each project's NPV. This is a forward-looking exercise. A project that had a positive NPV before might not necessarily generate a positive NPV if it was implemented today.

User Contributed Comments 3

User Comment
Rchan89 D..
ybavly keyword = NOT
johntan1979 You don't use post-audit to choose projects.
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