The Postaudit Review of Equipment Replacement Decisions in Capital Intensive Companies

Abstract

Abstract In spite of the universal agreement that capital expenditure postaudit reviews provide valuable feedback, postaudit reviews of equipment replacement decisions are rarely performed in practice. The lack of a precise and reliable accounting system is probably a primary reason that such decisions are not often subjected to a postaudit review. The accounting information related to an equipment replacement is usually aggregated with accounting information related to a cost center; and the cost center often contains many equipment items. This paper describes an approach to cost center accounting that focuses on major items of equipment instead of departmental groups of production workers. By focusing cost center control on major items of equipment, the accounting information would be sufficiently disaggregated in capital intensive industries to permit greatly enhanced analysis, including a meaningful postaudit review of equipment replacement capital expenditures.