Question

1. What is the purpose of requiring more levels of management approval, the larger the proposed capital expenditure? Is more information also required in support of the request?

Answer 1

The levels of approval for a large capital expenditure is higher due the higher risk involved. It is a part of corporate governance and enterprise risk management that the proposals involving large capital outlay must be approved at an appropriate level to keep the management informed and also to employ accountability and responsibility of the management of shareholders funds. It assists control and oversight of capital expenditure and also ensuring that the company's policy's are being followed. All capital expenditure proposals must be backed by the data that the project will be positive, generate sufficient future cash flows and must be discounted at an appropriate rate to represent the opportunity cost of the funds.