Certified Internal Auditor (CIA) Part 3: Business Knowledge for Internal Auditing — Question 217

Which of the following is a key characteristic of a zero-based budget?

Answer options

• A. A zero-based budget provides estimates of costs that would be incurred under different levels of activity.
• B. A zero-based budget maintains focus on the budgeting process.
• C. A zero-based budget is prepared each year and requires each item of expenditure to be justified.
• D. A zero-based budget uses input from lower-level and middle-level managers to formulate budget plans.

Correct answer: C

Explanation

The correct answer is C because a zero-based budget requires that each expense be justified for each new period, rather than just adjusting previous budgets. Options A, B, and D describe aspects that may be relevant to budgeting in general but do not specifically define what a zero-based budget entails.