FAR 31.201-2 and GAAP

[roy.manninen]

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  (a) A cost is allowable only when the cost complies with all of the following requirements:

           (1) Reasonableness.

           (2) Allocability.

           (3) Standards promulgated by the CAS Board, if applicable, otherwise, generally accepted accounting principles and practices appropriate to the circumstances.

           (4) Terms of the contract.

           (5) Any limitations set forth in this subpart.

      (b) Certain cost principles in this subpart incorporate the measurement, assignment, and allocability rules of selected CAS and limit the allowability of costs to the amounts determined using the criteria in those selected standards. Only those CAS or portions of standards specifically made applicable by the cost principles in this subpart are mandatory unless the contract is CAS-covered (see part  30). Business units that are not otherwise subject to these standards under a CAS clause are subject to the selected standards only for the purpose of determining allowability of costs on Government contracts. Including the selected standards in the cost principles does not subject the business unit to any other CAS rules and regulations. The applicability of the CAS rules and regulations is determined by the CAS clause, if any, in the contract and the requirements of the standards themselves.

      (c) When contractor accounting practices are inconsistent with this subpart  31.2, costs resulting from such inconsistent practices in excess of the amount that would have resulted from using practices consistent with this subpart are unallowable.

      (d) A contractor is responsible for accounting for costs appropriately and for maintaining records, including supporting documentation, adequate to demonstrate that costs claimed have been incurred, are allocable to the contract, and comply with applicable cost principles in this subpart and agency supplements. The contracting officer may disallow all or part of a claimed cost that is inadequately supported.

When reading this section, does (a)(3) require a government contractor to use GAAP at a minimum or does the last part of the sentence allow a government contractor to avoid GAAP and for example not accrue items on a monthly basis and instead do them on a yearly basis?

[here_2_help]

1 hour ago, roy.manninen said:

  "

When reading this section, does (a)(3) require a government contractor to use GAAP at a minimum or does the last part of the sentence allow a government contractor to avoid GAAP and for example not accrue items on a monthly basis and instead do them on a yearly basis?

You are required to follow CAS requirements first. If CAS is not applicable you are required to follow GAAP requirements. If GAAP is not applicable then I guess you can follow IFRS but I believe GAAP will always be applicable if you are preparing financial statements in the United States.

I'll also throw in that you won't be able to have the government determine your accounting system is adequate if you don't follow at least GAAP. I believe the Standard Form 1408 requires GAAP compliance. Please see DCAA's  Pre-Award Accounting System Survey

Hope this helps.

[Neil Roberts]

5 hours ago, roy.manninen said:

  "

When reading this section, does (a)(3) require a government contractor to use GAAP at a minimum or does the last part of the sentence allow a government contractor to avoid GAAP and for example not accrue items on a monthly basis and instead do them on a yearly basis?

For DOD requirements, see DCAA Accounting System Requirements document https://www.dcaa.mil/Portals/88/Documents/Guidance/Audit Overview/c_Accounting_System_2018-10-01 (Releasable).pdf?ver=2019-10-10-153710-007

In particular, see page 22 regarding monthly determinations of costs through postings and page 31 regarding GAAP.

[roy.manninen]

Is there a scenario where a government contractor wouldn't follow CAS or GAAP?

[here_2_help]

10 minutes ago, roy.manninen said:

Is there a scenario where a government contractor wouldn't follow CAS or GAAP?

Yes, an international contractor would follow International Financial Reporting Standards (IFRS). But I don't think that's really what you are asking. I think you are asking if you can run a business without preparing any type of financial statements; just do the minimum necessary to calculate taxable profit so you can file tax returns. The answer to that question is NO if you want to be a government contractor. If you don't want to sell to the government and just run a sole proprietorship, then maybe. But not if you want to sell to good ol' Uncle Sam.

[Retreadfed]

On 1/9/2021 at 10:21 AM, roy.manninen said:

Is there a scenario where a government contractor wouldn't follow CAS or GAAP?

In order to be considered responsible, a contractor must have an accounting system that is adequate for the contract being contemplated.  Thus, compliance with CAS or GAAP may not be required in all circumstances.  For example, Lee Ioccoa, (so?) the former chairman of Chrysler had a FFP contract to do broadcasts for VOA.  He would be paid a specific amount for each broadcast.  No financial data was required from him either before award or after award.

[Neil Roberts]

On 1/9/2021 at 7:21 AM, roy.manninen said:

Is there a scenario where a government contractor wouldn't follow CAS or GAAP?

Negotiated contracts $2million or more not exempt in accordance with 48 CFR 9903.201-1(b), are subject to CAS. A CAS-covered contract may be subject to either full or modified coverage. 

 

 

 

Edited January 11, 2021 by Neil Roberts
delete unintended language

[Retreadfed]

On 1/9/2021 at 10:21 AM, roy.manninen said:

Is there a scenario where a government contractor wouldn't follow CAS or GAAP?

Because of the requirement for the CASB to harmonize the CAS with GAAP, the distinction between the two may eventually be eliminated or at least substantially reduced.