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This Audit and Accounting Guide provides the latest information on accounting and auditing issues affecting federal government contractors. Updated with conforming changes as of May 1, 2008, it includes guidance in planning and performing audits under the risk assessment standards (SAS Nos. 104-111). This edition of the guide has also been conformed to reflect the Defining Professional Requirements standard (SAS No. 102). Furthermore, it provides additional guidance on the auditor’s responsibilities as set forth in SAS Nos. 112-114, including identifying and reporting internal control deficiencies, understanding the link between the auditor’s consideration of fraud and the auditor’s assessment of risk, and the auditor’s communications with those charged with governance.
The guide summarizes applicable requirements and practices, and delivers "how-to" advice for handling audit and accounting issues common to federal government contractors. It includes in-depth discussions of the contract procurement process, federal acquisition legislation and regulations, and the relevant financial reporting considerations for federal government contractors. Included in the appendices is a summary of the Cost Accounting Standards incorporated into Federal Acquisition Regulation Part 30; an entire re-print of SOP 81-1, Accounting for Performance of Construction-Type and Certain Production-Type Contracts; and a reprint of SOP 98-5, Reporting on the Costs of Start-Up Activities. The guide covers the following new accounting and auditing pronouncements:
For a topical listing of subject matter by chapter, click on the Table of Contents tab.
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Purpose and Applicability
This guide has been prepared to assist preparers of financial statements in preparing financial statements in conformity with generally accepted accounting principles and to assist independent auditors in auditing and reporting on such financial statements in accordance with generally accepted auditing standards in auditing and reporting on the financial statements of entities that provide goods and services to the federal government, or to prime contractors or subcontractors at any tier and for which such transactions are material to such entities' financial statements. It describes relevant accounting practices and auditing procedures unique to these entities. The descriptions in this guide are generally oriented to the defense contracting industry; however, the provisions of this guide apply to all federal government contractors.
This guide focuses on auditing and reporting issues with respect to the financial statements of government contractors and subcontractors; however, the guide does not discuss the application of all generally accepted accounting principles and auditing standards as they pertain to the preparation and audit of such financial statements.
The guide makes reference to and highlights a number of federal government contract regulations and requirements. Independent auditors auditing relevant entities should understand the contractor's business and consider these regulations and requirements as part of their planning and execution of their services. More specifically, independent auditors should consider the impact of these regulations and requirements with respect to the application of AU section 316, Consideration of Fraud in a Financial Statement Audit, and AU section 317, Illegal Acts by Clients (AICPA, Professional Standards, vol. 1).
A number of auditing procedures are discussed, but detailed internal control questionnaires and audit programs are not included.
The nature, timing, and extent of auditing procedures are a matter of professional judgment and will vary according to the size of the entity, the organizational structure, the existing internal control, and other factors.
The Financial Accounting Standards Board (FASB) has an active comprehensive revenue recognition project on its agenda. The objective of this project is to develop a comprehensive statement on revenue recognition that is conceptually based and framed in terms of principles. This statement will (a) eliminate the inconsistencies in the existing authoritative literature and accepted practices, (b) fill the voids that have emerged in revenue recognition guidance in recent years, and (c) provide a conceptual basis for addressing issues that arise in the future. Although the FASB plans for this statement to apply to business entities generally, it might later decide to exclude certain transactions or industries requiring additional study. Readers should be alert to the progress of this project because it may affect the accounting described in this guide.
This guide supersedes AICPA Industry Audit Guide Audits of Government Contractors (1975).
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