Federal Acquisition Regulation (FAR) audits are a service not offered by all CPA firms. FAR overhead (OH) rate audits are becoming more common with construction, architectural and engineering firms. The passage of additional transportation spending by the federal government will likely increase the needs for OH rate audits. It is quite possible that the firm that provides financial statement audits of construction/engineering companies may not be qualified or even interested in performing OH rate audits for the same companies.
Beyond the normal complexities of an audit, recent events and legislation can directly impact an OH rate calculation, most recently the forgiveness of your paycheck protection program (PPP) loan. Unlike a financial statement audit which is based on historical information, your OH rate has a direct impact on your bottom line in future periods. It is important that you and your CPA understand the impact of PPP forgiveness and potential credits reducing your OH rate.
Federal Acquisition Regulation Overhead Rate Audit CPA Considerations
FAR OH rate audits are specialized. So specialized that the American Association of State Highway and Transportation Officials (AASHTO) published the Uniform Audit and Accounting Guide (the Audit Guide)which brings consistency to both the calculation of OH rates and also the audits of OH rates. The Audit Guide provides several key points for the selection of a CPA firm as the auditor of OH rate schedules in compliance with FAR 31.2 Cost Principles, including but not limited to:
- Meet all Generally Accepted Government Auditing Standards (GAGAS) requirements, including professional education.
- Have received favorable peer review reports.
- Be well versed in the provisions of FAR Part 31.
- Have a working knowledge of the architecture and engineering industry, including common operating practices and risk factors.
- Assign direct supervisory staff to the engagement who have prior experience performing OH audits in compliance with FAR Part 31.
If you are in the process of choosing a CPA firm for your OH rate audit or considering a change in the future we recommend that you consider the points noted above during your decision-making process. McKonly and Asbury has a team of experts able to help your business navigate FAR OH audits. For more information on these services and more, be sure to visit our Construction Services page as well as our Audit Services page, and don’t hesitate to reach out to contact us with any questions.