Faced With Conflicting Regulations on Reporting, Does a Company Need Multiple Sets of Books?

By Darrell Oyer  

Publicly traded companies and many other companies must report financial data in accordance with established financial reporting requirements. These same companies must also file tax returns with the Internal Revenue Service (IRS). If the company has Federal government contracts, there is also a set of rules for reporting costs (Federal Acquisition Regulation or FAR) under those contracts, and larger companies must also comply with Cost Accounting Standards (CAS). So far, it sounds like four sets of books (i.e., financial records) may be necessary for some companies.

The accounting rules, regulations and procedures from these four sources often vary significantly and confusingly for many companies. For example, accrual accounting is required for compliant financial reporting, the IRS permits cash accounting for certain smaller companies (and others who have exceptions within the IRS provisions) and the FAR requires compliance with Generally Accepted Accounting Principles (GAAP). However, despite this fact, Federal auditors often accept cash accounting because it means the government pays later rather than sooner. The CAS Board policy accepts accrual accounting, but the CAS Board has stated that "Although the Board believes that the accrual basis of accounting generally provides for a better matching of costs to the production of goods and services which gave rise to them, the assignment of costs to accounting periods for government contract costing purposes must be carefully evaluated to assure that the assignment shows neither bias nor prejudice to either party to the contract." [CAS Board "Statement of Objectives, Policies and Concepts."] In other words, if the accrual method appears biased against the government, cash accounting is preferred.

ABOUT THE AUTHOR:

Darrell J. Oyer. Prior to forming his own Firm in 1991, Mr. Oyer was a partner with Deloitte & Touche, an international accounting firm. Before that, Mr. Oyer served nearly 20 years in the Defense Contract Audit Agency (DCAA) in various capacities. He is a Certified Public Accountant (CPA) in Virginia and has earned the accreditations of Certified Management Accountant (CMA), Certified Professional Contract Manager (CPCM), Certified Cost Estimator/Analyst (CCE/A) and Certified Data Processing Certificate (CDP).

Mr. Oyer is Editor of the LexisNexis publications "Accounting for Government Contracts-Cost Accounting Standards" and "Accounting for Government Contracts-Federal Acquisition Regulation." He is highly experienced in the application and interpretation of the Federal Acquisition Regulation (FAR) and department FAR Supplements, Financial Accounting Standards Board (FASB) pronouncements and Cost Accounting Standards Board (CASB) promulgations.

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