Which FAR duties are outlined in the contract by government agencies?
The government can impose a variety of responsibilities in its contract, as defined by the FAR. As a result, these agencies can either require contract bids or insist on the firm's FAR-compliant overhead rate. It might also be the company's auditing overhead or parallel footnotes schedule, which they will be on the lookout for.
What are the prerequisites for calculating FAR Overhead Rates?
Software for accounting:
While many businesses find government contracts appealing, they are responsible for the information they are required to produce during FAR audits. They also fail to obtain a complete report on the contract and its associated costs. As a result, it is critical for a company to have a submissive accounting system. It can be time-consuming and difficult at first, but it pays off in the long term for a company. The concerned accounting firm might provide software execution services to ensure smooth accounting.
System of Job Costing:
When working on a government contract, the Job Costing System is used to eliminate duplicate billing, which occurs frequently. The accounting system requires that only acceptable government billing be acknowledged during auditing. To do so, it's necessary to recognize the fixed cost of employees, which is estimated based on each worker's pay rate. While calculating this you can't count the cost of working hours as per your hourly rate. The hourly pay of a salaried person is thus determined by the amount of time he devotes to the job. You can even see if the Task Costing System is working properly because the job costing is solely linked to the direct cost of the general ledger.
How to Calculate Direct and Indirect Costs:
Firms must have an adequate understanding of their expenses in order to calculate FAR Overhead Rates. These costs must be distinguished from general overhead costs and those incurred as a result of government contracts.
Getting Rid of Unallowable Costs:
To avoid needless billing of expenses, FAR Overhead Rate Calculation necessitates a study of the expenses in order to divide the unallowable and allowed charges and time.
Thus, government contracts might be a good chance for architectural/engineering businesses if they understand the complexity that comes with them and follow the instructions of multiple government agencies. The difficulties include the necessity for a CPA firm to manage the firm's Overhead Rate Calculation and a FAR-compliant audit.
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