What is Government Contract Accounting?
Winning a government contract opens organizations up to a range of opportunities, but the reward comes with a significant responsibility—ensuring that relevant accounting regulations are followed. These rules exist to protect the country’s taxpayers and make contracting efficient and fair, but they can be difficult for companies to implement without professional help. Here, we’ll discuss some of the most important principles of government contract accounting.
Federal Acquisition Regulations
These regulations, also known as FAR, lay out uniform procedures and policies for the purchase of goods and services by government agencies. The rules ensure that these agencies administer and award contracts fairly and impartially, and compliance is essential for contractors. CPA Dept can help companies address compliance issues.
FAR has multiple sections that relate to accounting. For instance, some parts outline contract types, while others explain which costs can be charged to a contract. Certain contractors, such as those that work with the Defense Department, are under unique regulations.
Cost Accounting Standards
The CAS or Cost Accounting Standards were set to promote cost accounting uniformity and consistency. CAS includes 19 standards that determine how contractors measure, accumulate, allocate, and assign costs. The goal of CAS is to create a level playing field for contractors by outlining how costs are treated. Auditors typically use CAS to make recommendations and perform evaluations.
Defense Contract Audit Agency
Also referred to as DCAA, the Defense Contract Audit Agency protects the public’s interest by scrutinizing how taxpayers’ money is spent. The DCAA has created several audit types that cover the contract cycle from funding through conclusion.
Generally Accepted Accounting Principles
GAAP or Generally Accepted Accounting Principles are a set of procedures and standards used by the Financial Accounting Standards Board. All US public companies must follow GAAP when compiling financial statements, which is why hiring the right accountant is essential. Some of the most important GAAP principles are listed below.
- Regularity. This principle requires accountants to follow GAAP regulations.
- Consistency. In this principle, accountants must follow the same rules across periods, which ensures financial comparability. Any updates must be explained in detail and included in a company’s financial statements.
- Sincerity. Here, accountants are required to provide an accurate and impartial portrayal of a company’s finances.
- Non-compensation. In the principle of non-compensation, financial details must be reported transparently and with no expectation of compensation.
- Prudence. This principle states that a company’s financial data must be represented as factual, with no speculative influence.
- Continuity. The valuation of assets should be done under the assumption that the company will stay in business.
- Periodicity. Entries must be appropriately distributed across relevant time periods.
- Materiality and good faith. Accountants are required to disclose all financial data and information in their reports.
- Utmost good faith. All involved parties must perform transactions openly and honestly.
According to the Internal Revenue Service, federal contractors are defined as those possessing government contracts for the lease or sale of goods, services, or property. When working with the federal government, companies must follow these principles closely.
At CPA Department, we’ve provided professional services to small- and medium-sized businesses since 2014. We offer a variety of advisory, consultancy, tax, and accounting services to help businesses handle their most difficult processes. No matter a company’s industry, CPA Department can maximize its scalability, efficiency, and profitability.