Tuesday, October 5, 2010

Auditor Jargon Part 2 - Defensible

We are spending a few days discussing some of the more unusual terms that auditors tend to throw out there and expect everyone to understand what they're talking about. Auditors, probably as in any profession, have their own manner of specialized speaking. Today's word is "defensible".

This word is used to describe a particular position taken on a cost item. Very often, a contractor's position or an auditor's position vis-a-vis certain costs are based on a combination of facts and judgment. An auditor reviewing all the underlying data, logic, and rationale on a particular cost will make a judgment about the reasonableness of that position. If the position is reasonable the auditor might say that it is "defensible". It is also used among auditors to assess whether their own contrary position might be reasonable. In discussing the merits of their position, auditors will ask whether it is defensible, meaning would it withstand the scrutiny of an independent outside party looking at the same set of facts and assumptions? When both the contractor and the auditor have ostensibly "defensible" positions, arguments arise over whose position is most defensible.

Suppose you're estimating costs and you know that the project you're bidding on is slightly more difficult than previous projects. You need to add a factor to historical costs to account for the higher complexity. But how do you estimate that? You could add 10% based on some kind of judgmental estimate but the Government would probably term that position as indefensible - there is nothing to support that factor. That doesn't mean you won't win the Government over to your position during negotiations. It simply means that the auditors will unsupport the cost because it is not defensible - there is no support for it.

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