Records available for audit: Overview, definition, and example
What does "records available for audit" mean?
"Records available for audit" refers to a contractual requirement that a company or organization must maintain and provide access to financial, operational, or compliance-related records for review. This clause is commonly found in contracts, grant agreements, and regulatory filings to ensure transparency and accountability.
For example, a government contractor may be required to keep financial records for a set period and allow auditors to review them to verify proper use of public funds.
Why is "records available for audit" important?
This requirement ensures that businesses, government agencies, and nonprofits maintain proper documentation and operate with financial integrity. It helps detect fraud, confirm compliance with agreements, and ensure that funds or resources are used correctly.
For example, a nonprofit receiving state funding for community programs may need to provide financial statements and expense records during an audit to confirm that the funds were used for the intended purpose. Failure to comply could result in penalties or loss of funding.
Understanding "records available for audit" through an example
Imagine a software company that provides IT services to a government agency. Their contract includes a clause stating that all invoices, payroll records, and project expenses must be available for audit for five years. If the government wants to verify that the company charged correctly for services, auditors can request and review these records.
Another example is a franchisor requiring franchisees to keep accurate sales and revenue records. If a franchise agreement includes an audit clause, the franchisor can periodically check financial records to ensure proper royalty payments and compliance with business standards.
An example of a "records available for audit" clause
Here’s how a contract might define records available for audit:
“The Company agrees to maintain accurate records related to its performance under this Agreement and shall make such records available for audit by [Auditing Party] upon reasonable notice. Records shall be retained for a period of no less than [X] years from the date of the final transaction under this Agreement.”
Conclusion
Requiring records to be available for audit promotes transparency, compliance, and financial accountability. Businesses, contractors, and nonprofits should maintain detailed and accurate records to ensure they can meet audit requirements and avoid potential penalties or legal disputes. Proper record-keeping not only fulfills contractual obligations but also strengthens trust with stakeholders.
This article contains general legal information and does not contain legal advice. Cobrief is not a law firm or a substitute for an attorney or law firm. The law is complex and changes often. For legal advice, please ask a lawyer.