CIA Question of the Day: Budget Variance Interpretation

Quiz Yazan Ibrahim
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CIA exam practice question — CIA Question of the Day: Budget Variance Interpretation

CIA exam practice question: daily practice for the Certified Internal Auditor (CIA) exam — domain: Part 3: Business Knowledge for Internal Auditing.

Question

During a routine departmental review, an internal auditor notes a significant favorable variance in the maintenance expense budget for the year. The facilities manager explains that several planned maintenance tasks were postponed to preserve cash flow. What is the most appropriate interpretation of the favorable variance?

  • A. It demonstrates effective cost control and no further action is necessary.
  • B. It may indicate deferred expenditures that increase the risk of higher future costs.
  • C. It proves the department generated higher-than-expected revenue.
  • D. It indicates the budget was overstated and should be permanently reduced.
Show the answer and explanation

Correct answer: B. It may indicate deferred expenditures that increase the risk of higher future costs.

The correct answer is that the favorable variance may indicate deferred expenditures that increase the risk of higher future costs. A variance driven by postponed maintenance is not a genuine cost saving; it shifts costs and risk to the future and can lead to higher repair or downtime costs. Option A is wrong because apparent cost control can be illusory when maintenance is deferred. Option C is wrong because an expense variance does not demonstrate higher revenue. Option D is wrong because a single-year variance caused by deliberate deferral does not justify permanently reducing the budget without further analysis of needs and risks.

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