ACCA Audit and Assurance (F8) Practice Exam

What is an essential aspect of the CAPEX control areas?

1. Frequent management reviews

2. Expenditure must be authorized

3. Clear distinctions from operational expenses

4. Supplier performance audits

The correct answer is: Expenditure must be authorized

An essential aspect of CAPEX (capital expenditure) control areas is that expenditure must be authorized. This involves ensuring that all capital expenditures are properly approved before they are incurred. Authorization is crucial for maintaining financial discipline and ensuring that spending aligns with the organization’s strategic objectives and budgetary limits. When capital expenditures are not authorized, it can lead to overspending, misallocation of resources, and ultimately impact the financial health of the organization. Having a robust authorization process helps to mitigate risks associated with unauthorized spending and ensures accountability in capital investments. While frequent management reviews, clear distinctions from operational expenses, and supplier performance audits are important aspects of overall financial management and operational efficiency, they do not specifically address the core principle of authorization which serves as a foundational control in managing capital expenditures effectively.