Evaluating the Impacts of Federal Improvement and Audit Readiness (FIAR) Compliance

Abstract

Over the last 30 years, the Department of Defense (DoD) slowly became compliant with the Chief Financial Officers Act of 1990, which required federal agencies to undergo an annual financial audit. In 2018, the DoD finally completed its first audit and continued this trend in 2019. This paper seeks to understand the benefits of producing auditable financial statements, their costs, and any impacts on the DoD’s acquisition system. We describe the several forms of accounting and review the academic accounting literature that examines the value of audits. We describe the DoD’s preparation for and analyze the results of the two completed audits to look more broadly at the benefits. These include uncovering previously unaccounted inventory and improvements to internal accounting systems, even as no instances of massive waste or fraud were identified. Finally, the utility of management cost accounting is discussed.