Monday, October 4, 2010

Auditor Jargon Part 1 - Verifability

If you have been around Government auditors for any amount of time, you probably noticed that they have their own manner of specialized speaking - auditor parlance or auditor slang, whatever you want to call it. For example, "current, complete, and accurate" has a precise meaning when used in context of determining the adequacy of cost or pricing data. And, the terms "allowable, allocable, and reasonable" have a precise meaning when used in determining the propriety of costs charged to Government contracts. These phrases/terms are common enough and not exclusive to the audit profession. But there are others where the meanings are not so obvious. For the next few days, we will unpack the meaning of some of these. Today's word is "verifiability".

Contract cost accounting systems should provide for verifiability to the greatest extent practical. In other words, contract costs should be auditable by examination of appropriate data and documents supporting whatever costs are being reviewed, or by reference to the facts and assumptions used to allocate the costs to the contract (e.g. bases and pools for determining and allocating indirect costs). Verifiability is generally accepted as an important goal for information used in cost accounting. When auditors use the term verifiability, they are usually assessing whether a certain cost can be traced back through the cost accounting system to original source documents.

As far as we know, the term "verifiability" is not in the FAR. However, the Cost Accounting Standards Board (CASB) discusses it in its "Statement of Objectives" -  "...only such detail of cost allocation and record keeping should be required as is necessary to provide the verifiability that is needed to satisfy regulatory contract cost audit requirements and that detailed contractor accounting records of contract costs should be reconcilable with the general books of account.

So, an auditor testing for "verifiability" is simply making sure that you are able to trace those costs back to your formal cost accounting system.
but there are others that you probably heard some words and terms

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