Sunday, 30 December 2012

What is Post Investment Audit? Objectives, Advantages and Disadvantages

Post Investment Audit

Immediately after an investment project may be approved and implemented, a postaudit needs to be conducted. A postaudit involves checking whether or not expected results are truly realized.

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

The same technique needs to be used in the postaudit as was used in the original approval practice. That is, if a project was approved on such basis as a net present price analysis, than same procedure needs to be used in performing your postaudit. However, the data used in the postaudit analysis needs to be actual observed data instead of estimated data. This affords management with an opportunity to make a side-by-side comparison to see how well the project spent some time working out. It also helps ensure 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 inside the postaudit process. Actual result which can be far out of line with original estimates needs to be carefully reviewed.

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