Postaudit of Investment Projects

Postaudit of Investment Projects:

After an investment project has been approved and implemented, a postaudit should be conducted. A postaudit involves checking whether or not expected results are actually realized.

This is a key part of the capital budgeting process. It helps to keep managers honest in their investment proposals. Any tendency to inflate the benefits or downplay the costs in a proposal should become evident after a few post audits have been conducted. The postaudit also provides an opportunity to reinforce and possibly expand successful projects and to cut losses on floundering projects.

The same technique should be used in the postaudit as was used in the original approval process. That is, if a project was approved on the basis of a net present value analysis, than same procedure should be used in performing the postaudit. However, the data used in the postaudit analysis should be actual observed data rather than estimated data. This affords management with an opportunity to make a side-by-side comparison to see how well the project has worked out. It also helps assure that estimated date received on future proposals will be carefully prepared, since the persons submitting the data will know that their estimates will be given careful security in the postaudit process. Actual result that are far out of line with original estimates should be carefully reviewed.

You may also be interested in other articles from “capital budgeting decisions” chapter:

  1. Capital Budgeting – Definition and Explanation
  2. Typical Capital Budgeting Decisions
  3. Time Value of Money
  4. Screening and Preference Decisions
  5. Present Value and Future Value – Explanation of the Concept
  6. Net Present Value (NPV) Method in Capital Budgeting Decisions
  7. Internal Rate of Return (IRR) Method – Definition and Explanation
  8. Net Present Value (NPV) Method Vs Internal Rate of Return (IRR) Method
  9. Net Present Value (NPV) Method – Comparing the Competing Investment Projects
  10. Least Cost Decisions
  11. Capital Budgeting Decisions With Uncertain Cash Flows
  12. Ranking Investment Projects
  13. Payback Period Method for Capital Budgeting Decisions
  14. Simple rate of Return Method
  15. Post Audit of Investment Projects

  16. Inflation and Capital Budgeting Analysis
  17. Income Taxes in Capital Budgeting Decisions
  18. Review Problem 1: Basic Present Value Computations
  19. Review Problem 2: Comparison of Capital Budgeting Methods
  20. Future Value and Present Value Tables

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