Contract auditing is where written arrangements are examined with suppliers. Largely contract audit involves buyer introduction into conditions such as price, terms of supply, guarantee, and payment. Chiefly, this essay will discuss the purpose of the contract audit, how it is performed and why contract audit is helpful in both pre-contract, during contract and post-contract.
Purpose of Contract Audit
Principally, the reason behind the contract audit is to make sure that the quantity and quality of the products or services supplied to the purchaser are similar to what was ordered (Donatella, Haraldsson, & Tagesson, 2018). Furthermore, it also helps to ensure that the buyer is owed the correct amount. However, if contract audit is not carried on possible outcomes may be the supplier to deriver additional commodities or refund the portion of its billings. Accordingly, this may cause seller-buyer disputes which intern leads to negative impact to the business.
How to Perform Contact Audit
Contract audit may be achieved at either macro level or micro level. Nonetheless, in both ways, there are some crucial points to conceder when carrying out contract audit. To begin with, proper time, range and bounds should be determined both parties should be well aware of time and the expected performance (Noe, Hollenbeck, Gerhart, & Wright, 2006). Next, a collaboration of other parties should be stressed. Essentially, this is to provide a strong working relationship. Lastly, clear goals should be established. First and foremost the reasons that a firm are to start a contract audit can be many. However, if the final results are clear, the audit will be possible.
Benefits of Contract Audit at Pre-Contract Phase
Generally, contract audit in pre-contract phase helps the buyer to familiarize themselves with the terms of the sale, producer or the distributer's title, location of the seller and any other new results about the commodity (Galindo mier, 2018). As a result, the consumer or the customer will be aware of the value and the number of the goods or services to be delivered. Moreover, the consumer will be mindful of who is the seller and location the location where their seller is located. Intern, this will prevent cases where the buyer orders a commodity but when delivered the buyer find it is of very low utility.
Benefits of Contract Audit at Contract Period
Contract period is the dates that are stated in the contract. Primarily, in this stage the buyer and the seller should confirm whether the goods and services delivered are in the correct condition. Also, they should agree on new terms of sale if necessary (Varnaite, 2018). However, if there are no changes to the agreement, the seller is ready to sign the contract. The singed contract is then filed for future references. Notably, the signed contract is the one used to settle any disagreement. Mostly, this is because before putting the signature all the goods and services should be ensured to be as per the order
Benefits of Contract Audit at Post-Contract Period
In the post-contract phase, it is necessary to ensure that contract terms and conditions are followed. Besides, items such as under-reported income, unrecorded charges or overpayment should be carefully checked (Palmrose, 1989 pg 490). If otherwise, these items may lead to negative impact to the margin. However, if contract audit is well done in this stage, the seller should be able to know if the firm is making profit or loss. Consequently, the manager can know which action to take to improve on the weak areas.
Acquiring Leasehold Interests in Real Property
Processes such as acquisition of leasehold interest and real estate properties, contract audit is essential since the contracting officer uses the audit to determine whether the price is realistic and just. Correspondingly the potential sources should be determined to know if the location is capable of meeting the government's requirements. Besides, the contracting officer uses contract audit to ensure there is a healthy competition in a given location.
In conclusion, contract audit should be done to minimize disputes between the buyer and the seller which may cause a negative impact on the firm. First of all, the buyer should ensure that all the terms of sells well understood. Besides, both seller and buyer should confirm that all the goods or services are as they were ordered before signing the contract which is filed for future reference.
Donatella, P., Haraldsson, M., &Tagesson, T. (2018). Do audit firm and audit costs/fees influence earnings management in Swedish municipalities?. International Review of Administrative Sciences, 0020852317748730.
Galindo Mier, l. g. (2018).Modelo de gestion de direccionfacultativa en Colombia
Noe, R. A., Hollenbeck, J. R., Gerhart, B., & Wright, P. M. (2006). Human resource management. China People's University Press. Perspective (Doctoral dissertation, ISM University of Management and Economics).
Palmrose, Z. V. (1989). The relation of audit contract type to audit fees and hours. Accounting Review, 488-499.
Varnaite, I. (2018). Identify the success factors of the initial coin offerings from the investors.
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