Regulatory audit functions and auditor‐contractor relationships

Government contractors operate under circumstances unmatched in the commercial marketplace. A significant factor for conducting business in that environment is the use of heavy regulations. Government regulations for defence contractors include such procurement requirements as cost accounting standards, cost limitations and cost exclusions as outlined in the Defense Contract Audit Manual, Federal Acquisitions Regulations and Defense Acquisition Regulations. Defense Contract Audit Agency auditors must perform all necessary audits and ascertain contractor compliance with these standards as part of their internal control review. While contractors maintain costly accounting systems for the sole purpose of reporting to the Government, frequently adverse audit opinions are presented resulting in adversarial relationship between the two parties. First, addresses some of the most significant issues that lead to the development of conflict between the Goverment auditors and contractors, then provides some recommendations which are expected to reduce tension and increase efficiency of audit operations.