What is an adverse variance?

An adverse variance refers to a situation where actual financial performance is worse than what was planned or budgeted. Thus, the option that describes this correctly is a difference that negatively impacts the organization.

When examining the financial health of a business, variances are critical in assessing performance against forecasts. An adverse variance may arise from various factors such as increased costs or lower revenues, which directly affect profitability negatively. This type of variance can signal issues that need rectification to avoid long-term harm to the business's financial standing.

The other options do relate to aspects of variance but do not encapsulate the broader and more significant impact of adverse variance. A decrease in revenue alone may not define an adverse variance without considering both costs and budgeted expectations. Simply stating that actual figures are lower than budgeted revenues specifies one form of adverse variance but does not signify the overall negative impact on the organization. A positive financial outcome is opposite in nature to what an adverse variance conveys, as it suggests an improvement rather than a setback.