Tax Law

Why Generally Accepted Accounting Principles (GAAP) Are Insufficient for Government Contract Cost Accounting

By Darrell Oyer 

The cost accounting regulations for contracting with the Federal government consist of many pages1 of detailed principles, practices, rules and regulations, despite the fact that existing cost principles exist in the U.S. Generally Accepted Accounting Principles (GAAP) as well as in international accounting principles. Why is all this necessary? Do these detailed directions add value to the Federal contracting process?

Included in the Federal contracting rules is a requirement that costs be recorded in accordance with GAAP. However, the rules then proceed to add principles beyond those set forth in GAAP. Many GAAP provisions are not directly relevant to Federal contracts, particularly those related to the matching of revenue and expense. The focus of the Federal contracting rules is on the expense side of this equation.

However, some GAAP provisions are applicable and similar to the Federal contracting rules. One is the principle of consistency which states that when a business has established a method for the accounting treatment of an item, the business must record all similar items in exactly the same manner. Under Cost Accounting Standards (CAS) for Federal contracts, the rules provide that the Government will not pay for increased costs caused by any inconsistency. 


1 Federal Acquisition Regulation (Part 31, in particular) and Cost Accounting Standards.


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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