Auditing is a systematic examination of files and information to evaluate the appropriateness of budgeting, financial reporting, financial, and related rules and procedures; comply with legislation statutes, regulations, laws, and prescribed guidelines; and the reliability, accuracy, and completeness of financial and administrative records and reports.
Contract auditing helps to achieve sensible contracting by giving financial information and advice on contractual concerns and the effectiveness, efficiency, and economy of contractors' operations to those in charge of government procurement. Contract audit operations include providing expert accounting and financial advice to aid in contract negotiation, award, administration, repricing, and settlement.
Contractors and Program Managers (PM) should be aware of the following topics when it comes to auditing:
- Government Audit Standards Audit Plan
- Executing Auditing Services
- Obtaining Records Access
Every society's economic decisions must be based on the knowledge available at the time of the decision. For instance, a bank's decision to offer a loan to a firm is based on previous financial ties with that business, its economic status as represented in its financial statements, and other variables.
The information used in the decision process must be reliable if the decisions are consistent with the decision makers' intentions. Unreliable data can lead to inefficient resource allocation, which is terrible for society and bad for decision-makers.
Suppose that the barfly makes the loan based on false financial representations and that the borrower Company is ultimately unable to repay the debt. As a result, both the principal and the interest will be lost by the bank. Furthermore, another company that could have made good use of the capital will deny access to it.
As society becomes more complicated, there is a greater chance that decision-makers will be given inaccurate information. This is due to several factors: information asymmetry, large amounts of data, and the occurrence of complicated exchange transactions.
To overcome the challenge of untrustworthy data, the decision-maker must devise a method of convincing himself that the data is sufficiently trustworthy for these decisions. To do so, he must measure the expense of collecting more reliable data against the anticipated advantages.
Having some verification (audit) performed by independent persons is a frequent technique to gather such accurate information. Assuming that the audited data is complete, accurate, and unbiased, it is subsequently employed in the decision-making process.