Accountants' Handbook Volume Two: Special Industries and Special Topics, Eleventh Edition

Chapter 37. ACCOUNTING FOR GOVERNMENT CONTRACTS

Margaret M. Worthington, CPA

UNIQUE ACCOUNTING REQUIREMENTS FOR FEDERAL CONTRACTORS

The federal government operates within a formalized statutory and regulatory framework when it acquires products and services. That process was significantly streamlined and simplified in the 1990s for acquisitions of commercial products and services or awards that are competed among qualified suppliers. For contracts awarded in these circumstances, negotiations are based on prices submitted by offerors in response to government solicitation notices. However, when products or services are custom made and/or awards are not competed, the estimated or actual cost of performance becomes a dominant factor in setting prices. Consequently, systems used by federal contractors in this latter environment must not only maintain information that is necessary to effectively price contracts and control contract incurred costs but also must comply with special cost estimating, cost accounting, billing, and project management requirements. This chapter is designed to provide a practical discussion of those unique federal contracting requirements, which include:

• Cost Principles. Federal cost principles contained in Part 31 of the Federal Acquisition Regulation Federal Acquisition Regulation (FAR) provide specific criteria as to the costs that may be included in contract proposals, claims and billings submitted to the government.

• Cost Accounting Standards (CAS). Nineteen ...