Holooly Plus Logo
Holooly Plus Logo

Question 4.A.22: Can you think of any drawbacks to the use of a post-completi...

Can you think of any drawbacks to the use of a post-completion audit? Could it have an adverse effect on management behaviour?

The blue check mark means that this solution has been answered and checked by an expert. This guarantees that the final answer is accurate.
Learn more on how we answer questions.

One potential problem is that it will inhibit managers from proposing and supporting high-risk projects. If things go wrong, they could be blamed. This may result in only low-risk projects being submitted for approval. A further potential problem is that managers will feel threatened by the post-completion audit investigation and so will not co-operate fully with the audit team.

Related Answered Questions

Question: 4.A.10

See whether you can show that Billingsgate Battery would find £27,778, receivable now, equally acceptable to receiving £40,000 in two years’ time, assuming that there is a 20 per cent investment opportunity. ...

Verified Answer:

To answer this activity, we simply apply the princ...
Question: 4.RQ.4

Why are cash flows rather than profit flows used in the IRR, NPV and PP methods of investment appraisal? ...

Verified Answer:

Cash flows are preferred to profit flows because c...
Question: 4.RQ.3

Research indicates that the IRR method is extremely popular even though it has shortcomings when compared with the NPV method. Why might managers prefer to use IRR rather than NPV when carrying out discounted cash flow evaluations? ...

Verified Answer:

The IRR method does appear to be preferred to the ...
Question: 4.RQ.2

The payback method has been criticised for not taking into account the time value of money. Could this limitation be overcome? If so, would this method then be preferable to the NPV method? ...

Verified Answer:

The payback method, in its original form, does not...
Question: 4.RQ.1

Why is the net present value method of investment appraisal considered to be theoretically superior to other methods that are found in practice? ...

Verified Answer:

NPV is usually considered the best method of asses...
Question: 4.SAQ.1

Beacon Chemicals plc is considering buying some equipment to produce a chemical named X14. The new equipment’s capital cost is estimated at £100 million. If its purchase is approved now, the equipment can be bought and production can commence by the end of this year. £50 million has already been ...

Verified Answer:

Beacon Chemicals plc (a) Relevant cash flows are a...
Question: 4.A.21

How might classification help in this way? ...

Verified Answer:

The different classes of investment may reflect di...
Question: 4.A.20

It can be argued that the sequence of these first two stages can be reversed. Can you figure out why? ...

Verified Answer:

In theory, finance can always be found for profita...
Question: 4.A.19

Earlier in the chapter, we discussed the limitations of the PP method. Can you explain why it is still a popular method of investment appraisal among managers? ...

Verified Answer:

There seems to be several possible reasons: ■ PP i...
Question: 4.A.18

The directors of Manuff (Steel) Ltd are considering closing one of the business’s factories. There has been a reduction in the demand for the products made at the factory in recent years. The directors are not optimistic about the long-term prospects for these products. The factory is situated in ...

Verified Answer:

Your answer should be as follows: (a) Relevant cas...