The government can impose various obligations in their contract in accordance with the FAR. As a result, these agencies can either demand contract bids or insist on the firm's overhead rate in accordance with FAR. Furthermore, it could be the company's audited overhead or parallel footnotes schedule, which they will be on the lookout for.
What are the prerequisites for calculating FAR Overhead Rates?
While many businesses find government contracts appealing, what they must monitor is the information they are required to produce during FAR audits. They even fail to obtain a proper report on the contract and its associated costs. As a result, it is critical for a company to have a submissive system in place to manage its accounting. It can be time-consuming and difficult at first, but it is beneficial to a company in the long run. The concerned accounting firm can 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 avoid double billing, which occurs in many cases. The accounting system requires that only allowable government billing be acknowledged during auditing. To calculate that, it is necessary to recognize the definite cost of employees, which is calculated based on each worker's pay rate. You cannot include the cost of working hours at your hourly rate in this calculation. The hourly rate of a salaried employee is thus calculated based on the time he devotes to the project. You can even see if the Job Costing System is working properly because the job costing is only reunited with the direct cost of the general ledger.
Calculating Direct and Indirect Costs:
Firms must have a thorough understanding of their expenses in order to calculate FAR Overhead Rates. These expenses must be distinguished as general overhead expenses and those incurred as a result of government contracts.
Getting Rid of Unallowable Costs:
FAR Overhead Rate Calculation necessitates a review of expenses in order to divide unallowable and allowable expenses and time in order to avoid unnecessary billing of expenses.
Thus, Government contracts represent an appropriate opportunity for Architectural/Engineering firms if they correctly perceive the complexities that come with it in accordance with the directives of various Government entities. The complexity stems from the need for a CPA firm to handle the firm's Overhead Rate Calculation and the audit in accordance with FAR."""