Chapter 37 Auditing Government Contractors文档格式.docx
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37.2LAWSANDREGULATIONS
(a)CostPrinciples,
(i)FAR,
(ii)OMBCircularA-122,
(iii)OMBCircularA-21,
(b)CostAccountingStandards,
(c)OtherProvisionsoftheFAR,
(i)TruthinNegotiationsAct,
(ii)LimitationofCost,
(iii)UnilateralChanges,
(iv)ContractTermination,
(d)Oversight,
37.3ACCOUNTINGPRINCIPLESANDPRACTICES
(a)RevenueRecognition,
(b)ContractCosts,
(c)ContractCostEstimates,
(d)ProvisionsforAnticipatedLosses,
(e)Contract-RelatedAssetsandLiabilities,
(f)ResearchandDevelopmentActivities,
37.4RISKFACTORS
(a)RepricingofContracts,
(i)CAS,
(ii)DefectivePricing,
(iii)CostAudits,
(iv)MostFavoredCustomerProvision,
(b)Claims,
(c)Suspension,
(d)Fraud,Waste,andAbuse,
(e)Subcontractors,
37.5INTERNALCONTROL
(a)CodesofEthics,
(b)EstimatingProcess,
(c)ContractCostAccountingPractices,
(d)UnallowableCosts,
(e)JobOrderIntegrity,
(f)ContractRevenueRecognitionPractices,
(g)PendingContractsandModifications,
37.6SUBSTANTIVETESTS
(a)TimelinessofGovernmentAudits,
(b)ContractsinProgress,
37.1OVERVIEWOFTHEINDUSTRY
Varioustypesofentitiesmayenterintocontractswiththefederalgovernment,1forexample,aerospaceorothermanufacturers,professionalservicesfirms,healthcareintermediaries,orresearchuniversities.Mostoftheiressentialbusinessprocessesarethesamewithrespecttotheirgovernmentcontractingactivitiesaswithrespecttotheirprivate-sectorbusiness.Itisnotthenatureofwhatacontractordoesthatpresentsuniqueauditingissues;
rather,itisthecontractor'
srelationshipwithitscustomerwhenthecustomeristhefederalgovernment.
Thatrelationshipisdefinedbyregulationswithwhichfederalgovernmentcontractorsmustcomply.Theseregulationsgiverisetouniquecontingentliabilitiesandotherissuesthatauditorsmustconsider.Forexample,thegovernmentmayhavetherighttorepriceacontract,ormaywithholdorreducecontractpaymentsforanextendedperiodoftime.Suchcontractrightsheldbythegovernmenthavenocounterpartintheprivatesector.
Theregulationswithwhichgovernmentcontractorsmustcomplyarewrittenbythegovernmentandenforcedbyanelaborateoversightnetworkofgovernmentauditorsandcontractadministrators.Theregulations,andthelawsonwhichtheyarebased,areinherentlypoliticalandaresubjecttofrequentchangebyelectedandappointedofficials.Manyrulesarefundamentallyoppositetoprevailingbusinesspracticeintheprivatesector.Forexample,inmanycases,agovernmentcontractorisrequiredtodiscloseeveryaspectofitspricingprocess,includingproprietaryinformation,tothegovernment.Failuretodosomaybepunishableasacriminaloffense.Thiscontrastswithprivate-sectorcontracts,forwhichdisclosureofpricingdetailsishighlyunusual.Thischapterfocusesonidentifyingthecircumstancesthatcangiverisetotheserequirementsandtheattendantrisksthatgovernmentcontractorsface.
37.2LAWSANDREGULATIONS
Thegovernmenthasestablishedcostprinciplesforthepricingofcontracts,subcontracts,andmodificationstocontractsandsubcontracts.Theprinciplesareapplicablewhenevercontractororsubcontractorcostsaresubjecttoanalysis.Inmostinstances,acostanalysisisrequiredonlyifanawardexceeds$500,000andsubmissionofcostorpricingdataisrequiredbytheTruthinNegotiationsAct[seeSection37.2(c)(i)inthisSupplement].Thecostprinciplesalsoapplywheneveracontractclauseincorporatestheprinciplesaspartofthecriteriafordeterminingornegotiatingtheallowabilityofcosts.Theparticularcostprinciplesfollowedwilldependonthenatureofthecontractor.Mostfor-profitcontractorsarecoveredbythecostprinciplesintheFederalAcquisitionRegulation(FAR).Not-for-profitorganizationsarecoveredbythecostprinciplesinOfficeofManagementandBudget(OMB)CircularA-122;
researchuniversitiesarecoveredbythecostprinciplesinOMBCircularA-21.Whileallcostprincipleshavemuchincommon,thereareimportantdifferencesandtheauditorshouldalwaysunderstandwhichregulationsapplytoacontract.
(a)CostPrinciples
Allnegotiatedgovernmentcontractsexceeding$500,000arecoveredbycostprinciples.Theparticularcostprinciplesfollowedwilldependonthenatureofthecontractor.Mostfor-profitcontractorsarecoveredbythecostprinciplesintheFederalAcquisitionRegulation(FAR).Not-for-profitorganizationsarecoveredbythecostprinciplesinOfficeofManagementandBudget(OMB)CircularA-122;
researchuniversitiesarecoveredbythecostprinciplesinOMBCircularA-21.Whileallcostprincipleshavemuchincommon,thereareimportantdifferencesandtheauditorshouldalwaysunderstandwhichregulationsapplytoacontract.
(i)FAR.TheFederalAcquisitionRegulationisthegovernment'
scomprehensiveprocurementregulationandappliestoallagencies.AgenciesmaysupplementtheFARwithadditionalregulations,butmustfollowthebasicrulesintheFAR.Inadditiontodefininganddiscussingsuchconceptsasdirectandindirectcosts,Part31oftheFARintroducestheconceptofallowability.Thisisauniquelygovernmentalconceptandestablishesthatthegovernment,asamatterofpolicy,willnotreimburseacontractorforcertaincoststhatarenotreasonable,notallocabletothecontract,orspecificallyprohibitedbythecontract.
Additionally,Part31oftheFARcontainsspecificinstructionsonapproximately50categoriesofcost,rangingfromadvertisingcoststotaxes.Somecostsareexpresslyunallowable,suchasmostadvertising,lobbying,entertainment,interest,andalcoholicbeveragecosts.Othercostsarereimbursable,includingmanytypesofcompensation,depreciation,andresearchanddevelopmentcosts.Theinclusionofcostsdirectlyassociatedwithunallowablecostsisprohibited,suchastravelcostsincurredinsupportoflobbyingactivities.Manyoftheseprohibitionsarerootedinlaw,andchargingunallowablecoststothegovernmentisconsideredaseriousmatter.Theamountsofunallowablecostsareusuallysmallfromamaterialityperspective;
generally,unallowablecostsconstituteonlyalittleover1percentofcontractcosts.Thepotentialramificationsfrombillingunallowablecosts,suchasfines,penalties,repricing,andinextremecasessuspension,arefaroutofproportiontotheamountsofsuchcosts.Mostunallowablecostsarelegitimatebusinesscosts,andtheFARprohibitiondoesnotaffecttheirdeductibilityfortaxpurposes.
(ii)OMBCircularA-122.Thisregulationcoversnot-for-profitcontractors,exceptforcertainresearchinstitutions(approximately30)thathavehadalong-standingrelationshipwiththeDepartmentofDefenseandwhicharecoveredbytheFAR.Thecircularprovidesprinciplestobeappliedinestablishingtheallowabilityofcertaincosts;
italsoestablishesuniformrulesfordeterminingthecostsofgrants,contracts,andotheragreements,andguidelinesonwhethercostsaretobetreatedasdirectorindirect.
(iii)OMBCircularA-21.CircularA-21appliestouniversities,manyofwhicharemajorresearchcontractors,sincemuchofthefundingforresearchactivitiesisprovidedbythegovernment.Someuniversitiesconductgovernmentresearchtotalinghundredsofmillionsofdollars.Theircostprinciplesdifferfromthoseforothergovernmentcontractorsinthattheyaretailoredtotheaccountingsystemsusedbyuniversities,whoseprimaryreportingobjectiveisaccountingforresourcesreceivedandused.Thecostprinciplesareusedindeterminingtheallowablecostsofworkperformedbycollegesanduniversitiesundersponsoredagreementsandalsoundersubgrants,cost-reimbursementsubcontracts,andotherawards.SectionFofthecircularprovidesforidentificationandassignmentofindirectcostssuchasdepreciation,operatingandmaintenanceexpenses,generalandadministrativeexpenses,departmentaladministrationexpenses,libraryexpenses,andstudentadministrationandservices.
(b)CostAccountingStandards
CertainlargecontractsarealsocoveredbyCostAccountingStandards(CAS).ContractorssubjecttoCASmayberequiredtocomplywithupto19standardsthatspecifythetreatmentofcertaincosts,tosubmitadisclosurestatementthatdescribesaccountingpractices,andtoadheretootherproceduresregardingchangestoaccountingpractices.
Currently,contractorsareexemptfromCAScoverageunlesstheyreceivea"
trigger"
contractorsubcontractworthmorethan$7.5million.TherequirementtoadheretoallCASprovisionsappliestocontractorsreceivingasingleawardofatleast$50millionorcumulativeawardsof$50millioninthepriorfiscalyear.Therelateddisclosurerequirementalsoissetat$50million.CAS-coveredcontractorsthatdonotmeetthe$50millionthresholdaresubjecttoamodifiedformofcoveragethatrequiresadherencetofourofthestandardsandtotheproceduresregardingaccountingchanges.
Firmfixed-pricecontractsareexemptfromCAScoverageiftheyareawardedonthebasisofadequatepricecompetitionwithoutsubmissionofcertifiedcostorpricingdata.Otherexemptionsalsoapply.Forexample,allcontractawardstosmallbusinessesareexemptfromCAScoverage.AgenciescanwaiveCASapplicabilitytocontractsvaluedatlessthan$15millionwithcompaniesthatsellprimarilycommercialitems.TheagenciesalsohaveflexibilitytowaiveCASonhigher-valuedcontracts.
Thedollarthresholdsandexemption