Difference between revisions of "Mandatory Annual Audit Requirements (MAARs)"
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! Number and Title !! Objectives !! Purpose !! DCAM Reference | ! Number and Title !! Objectives !! Purpose !! DCAM Reference | ||
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| − | | 1.Internal Control Audit Planning Summary and/or Internal Control Questionnaire (ICQ) || Document/update in the permanent files the internal control audit planning summary and/or the internal control questionnaire and evaluate changes in contractor’s internal controls. || Determine the extent of reliance that can be placed on the internal controls for contract costs and the need for and extent of substantive testing that may be required based on the observed strengths or weaknesses of contractor systems. || 3-300,5-100, 5-111 | + | | 1. Internal Control Audit Planning Summary and/or Internal Control Questionnaire (ICQ) || Document/update in the permanent files the internal control audit planning summary and/or the internal control questionnaire and evaluate changes in contractor’s internal controls. || Determine the extent of reliance that can be placed on the internal controls for contract costs and the need for and extent of substantive testing that may be required based on the observed strengths or weaknesses of contractor systems. || 3-300,5-100, 5-111 |
|- | |- | ||
| − | | 2.Contract Cost Analysis and Reconciliation to Books || Evaluate summaries of the contractor's total annual contract costs by major cost element (material, subcontracts, intracompany charges, and credits, etc.), and verify that the auditable contract costs reconcile to contractor accounting records by cost element (typically using work-in-process or other contract control accounts in the general ledger). || To provide an overview and order-of-magnitude frame of reference for direction of audit effort and other audit planning/performance considerations, and to verify that the auditable costs claimed or to be claimed on Government contracts tie in to the amounts produced by the accounting system in the contractor’s official books and records. || 6-610.1 | + | | 2. Contract Cost Analysis and Reconciliation to Books || Evaluate summaries of the contractor's total annual contract costs by major cost element (material, subcontracts, intracompany charges, and credits, etc.), and verify that the auditable contract costs reconcile to contractor accounting records by cost element (typically using work-in-process or other contract control accounts in the general ledger). || To provide an overview and order-of-magnitude frame of reference for direction of audit effort and other audit planning/performance considerations, and to verify that the auditable costs claimed or to be claimed on Government contracts tie in to the amounts produced by the accounting system in the contractor’s official books and records. || 6-610.1 |
|- | |- | ||
| − | | 3.Permanent Files || Maintain/update permanent files for new or changed contractor organizations, operations, policies, procedures, internal controls, software programs, and accounting methods that influence the nature, level, and accounting treatment of costs being charged to Government contracts. Update documentation of contractor contract briefing system or update auditor-prepared briefs. || To provide an efficient and effective repository of current audit information. Permanent file maintenance should help identify the need for further audit and analysis, and help in determining the accounting methods that influence the nature, level, and extent of further testing required in specific cost accounts, functions, operations, and departments. || 3-302.1, 3-302.2, 4-405 | + | | 3. Permanent Files || Maintain/update permanent files for new or changed contractor organizations, operations, policies, procedures, internal controls, software programs, and accounting methods that influence the nature, level, and accounting treatment of costs being charged to Government contracts. Update documentation of contractor contract briefing system or update auditor-prepared briefs. || To provide an efficient and effective repository of current audit information. Permanent file maintenance should help identify the need for further audit and analysis, and help in determining the accounting methods that influence the nature, level, and extent of further testing required in specific cost accounts, functions, operations, and departments. || 3-302.1, 3-302.2, 4-405 |
|- | |- | ||
| − | | 4.Tax Returns and Financial Statements || Evaluate applicable tax returns, financial statements, and other publicly available data of the contractor. || To highlight possible areas to reduce the extent of DCAA audit effort that might otherwise be required. || 3-204.16c | + | | 4. Tax Returns and Financial Statements || Evaluate applicable tax returns, financial statements, and other publicly available data of the contractor. || To highlight possible areas to reduce the extent of DCAA audit effort that might otherwise be required. || 3-204.16c |
|- | |- | ||
| − | | 5.General Ledger, Trial Balance, Income and/or Credit Adjustments || Analyze the contractor's general ledger, trial balance, and other income/accounting adjustments (for example, unusual and/or sensitive journal entries). || To help identify any income and credits which the Government may be entitled to obtain or share, and to evaluate the exclusion of any adjustments not reflected by the contractor in Government contract costs. || 6- | + | | 5. General Ledger, Trial Balance, Income and/or Credit Adjustments || Analyze the contractor's general ledger, trial balance, and other income/accounting adjustments (for example, unusual and/or sensitive journal entries). || To help identify any income and credits which the Government may be entitled to obtain or share, and to evaluate the exclusion of any adjustments not reflected by the contractor in Government contract costs. || 6- |
608.2d(5), 6-608.3b(1) | 608.2d(5), 6-608.3b(1) | ||
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| − | | 6.Labor Floor Checks or Interviews || Perform floor checks, interviews, and/or other physical observations, and related analysis of employee timekeeping on a concurrent basis. || To test the reliability of employee time records, that employees are actually at work, that they are performing in assigned job classifications, and that time is charged to the proper cost objective. || 6-402c, 6-404, 6-405 | + | | 6. Labor Floor Checks or Interviews || Perform floor checks, interviews, and/or other physical observations, and related analysis of employee timekeeping on a concurrent basis. || To test the reliability of employee time records, that employees are actually at work, that they are performing in assigned job classifications, and that time is charged to the proper cost objective. || 6-402c, 6-404, 6-405 |
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| − | | 7.Changes in Direct/Indirect Cost || Evaluate changes in procedures and practices for charging direct/indirect cost for consistency with generally accepted accounting principles, the applicable cost principles per contracts, and any applicable CAS requirements. || To verify that changes in charging direct/indirect cost do not have the effect of improperly shifting costs among cost objectives or circumventing cost targets or ceilings of certain contracts or other significant cost categories. || 5-911.1, 6-404.6b(4), 6-407.2, 6-504.1, 6-603.4, 6-604.1 | + | | 7. Changes in Direct/Indirect Cost || Evaluate changes in procedures and practices for charging direct/indirect cost for consistency with generally accepted accounting principles, the applicable cost principles per contracts, and any applicable CAS requirements. || To verify that changes in charging direct/indirect cost do not have the effect of improperly shifting costs among cost objectives or circumventing cost targets or ceilings of certain contracts or other significant cost categories. || 5-911.1, 6-404.6b(4), 6-407.2, 6-504.1, 6-603.4, 6-604.1 |
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| − | | 8.Comparative Analysis-Sensitive Labor Account || Perform comparative analysis of sensitive labor accounts. || To identify for further examination any sensitive labor charges (for example, indirect charging by direct labor employees) that vary significantly from the prior period and/or budgetary estimates. || 5-911.1, 6-404.6b(4)(b) | + | | 8. Comparative Analysis-Sensitive Labor Account || Perform comparative analysis of sensitive labor accounts. || To identify for further examination any sensitive labor charges (for example, indirect charging by direct labor employees) that vary significantly from the prior period and/or budgetary estimates. || 5-911.1, 6-404.6b(4)(b) |
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| − | | 9. | + | | 9. Payroll/Labor Distribution Reconciliation and Tracing || Evaluate the contractor’s labor cost distribution. || To test overall integrity of labor cost records at the general ledger and cost ledger levels, and to reconcile payroll accruals and disbursements, making sure that distribution entries trace to and from the cost accumulation records. || 6-406.1, 6-406.2a(6) |
|- | |- | ||
| 10. Adjusting Entries and Exception Reports|| Evaluate adjusting journal entries and exception reports for both direct and indirect costs. Evaluation for direct costs should include labor, ODCs, purchased services, and material (including subcontract costs and intracompany charges.) || To identify adjustments and/or exceptions that require further audit analysis and explanation. || 5-913.1, 6-305.3a(1), 6-404.6b(b), 6-608.2c(2). | | 10. Adjusting Entries and Exception Reports|| Evaluate adjusting journal entries and exception reports for both direct and indirect costs. Evaluation for direct costs should include labor, ODCs, purchased services, and material (including subcontract costs and intracompany charges.) || To identify adjustments and/or exceptions that require further audit analysis and explanation. || 5-913.1, 6-305.3a(1), 6-404.6b(b), 6-608.2c(2). | ||
|- | |- | ||
| − | | | + | | Reserved || || || |
|- | |- | ||
| − | | | + | | 12. Auditable Subcontract/Assist Audits || Evaluate auditable type subcontracts and intra-company orders issued by the contractor under auditable type Government contracts and subcontracts, and request any needed independent assist audits. || To protect the Government's interest concerning the ensuing costs. || 6-310.1, 6-802.2d (and J), 6-802.4a, 6-802.5, 6-803, 6-805, 6-806 |
|- | |- | ||
| − | | | + | | 13. Purchases Existence and Consumption || Make physical observations and/or inquiries on a concurrent basis in addition to documentation verification of contract charges for purchased materials and services. || To test that materials were in fact received (exist or were consumed) and that services were in fact performed. || 6-305.3a(2) |
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| Example || Example || Example || Example | | Example || Example || Example || Example | ||
Revision as of 09:48, 29 January 2015
Contents |
Introduction
The DCAA Contract Audit Manual http://www.dcaa.mil/cam/Chapter_06_-_Incurred_Costs_Audit_Procedures.pdf Chapter 6, Section 105 (6-105) gives a very good overview of Mandatory Annual Audit Requirements.[1]
MAARs are generally necessary to comply with generally accepted government auditing standards (GAGAS) in the incurred cost contract audit environment at major contractors. The MAARs vary in purpose, and type of controls and transactions tested.
Schedule of Mandatory Annual Audit Requirements
Table 6-1S1 DCAM Supplement list the 19 MAARS Requirements (DCAM, page 613, see link in introduction)
| Number and Title | Objectives | Purpose | DCAM Reference |
|---|---|---|---|
| 1. Internal Control Audit Planning Summary and/or Internal Control Questionnaire (ICQ) | Document/update in the permanent files the internal control audit planning summary and/or the internal control questionnaire and evaluate changes in contractor’s internal controls. | Determine the extent of reliance that can be placed on the internal controls for contract costs and the need for and extent of substantive testing that may be required based on the observed strengths or weaknesses of contractor systems. | 3-300,5-100, 5-111 |
| 2. Contract Cost Analysis and Reconciliation to Books | Evaluate summaries of the contractor's total annual contract costs by major cost element (material, subcontracts, intracompany charges, and credits, etc.), and verify that the auditable contract costs reconcile to contractor accounting records by cost element (typically using work-in-process or other contract control accounts in the general ledger). | To provide an overview and order-of-magnitude frame of reference for direction of audit effort and other audit planning/performance considerations, and to verify that the auditable costs claimed or to be claimed on Government contracts tie in to the amounts produced by the accounting system in the contractor’s official books and records. | 6-610.1 |
| 3. Permanent Files | Maintain/update permanent files for new or changed contractor organizations, operations, policies, procedures, internal controls, software programs, and accounting methods that influence the nature, level, and accounting treatment of costs being charged to Government contracts. Update documentation of contractor contract briefing system or update auditor-prepared briefs. | To provide an efficient and effective repository of current audit information. Permanent file maintenance should help identify the need for further audit and analysis, and help in determining the accounting methods that influence the nature, level, and extent of further testing required in specific cost accounts, functions, operations, and departments. | 3-302.1, 3-302.2, 4-405 |
| 4. Tax Returns and Financial Statements | Evaluate applicable tax returns, financial statements, and other publicly available data of the contractor. | To highlight possible areas to reduce the extent of DCAA audit effort that might otherwise be required. | 3-204.16c |
| 5. General Ledger, Trial Balance, Income and/or Credit Adjustments | Analyze the contractor's general ledger, trial balance, and other income/accounting adjustments (for example, unusual and/or sensitive journal entries). | To help identify any income and credits which the Government may be entitled to obtain or share, and to evaluate the exclusion of any adjustments not reflected by the contractor in Government contract costs. | 6-
608.2d(5), 6-608.3b(1) |
| 6. Labor Floor Checks or Interviews | Perform floor checks, interviews, and/or other physical observations, and related analysis of employee timekeeping on a concurrent basis. | To test the reliability of employee time records, that employees are actually at work, that they are performing in assigned job classifications, and that time is charged to the proper cost objective. | 6-402c, 6-404, 6-405 |
| 7. Changes in Direct/Indirect Cost | Evaluate changes in procedures and practices for charging direct/indirect cost for consistency with generally accepted accounting principles, the applicable cost principles per contracts, and any applicable CAS requirements. | To verify that changes in charging direct/indirect cost do not have the effect of improperly shifting costs among cost objectives or circumventing cost targets or ceilings of certain contracts or other significant cost categories. | 5-911.1, 6-404.6b(4), 6-407.2, 6-504.1, 6-603.4, 6-604.1 |
| 8. Comparative Analysis-Sensitive Labor Account | Perform comparative analysis of sensitive labor accounts. | To identify for further examination any sensitive labor charges (for example, indirect charging by direct labor employees) that vary significantly from the prior period and/or budgetary estimates. | 5-911.1, 6-404.6b(4)(b) |
| 9. Payroll/Labor Distribution Reconciliation and Tracing | Evaluate the contractor’s labor cost distribution. | To test overall integrity of labor cost records at the general ledger and cost ledger levels, and to reconcile payroll accruals and disbursements, making sure that distribution entries trace to and from the cost accumulation records. | 6-406.1, 6-406.2a(6) |
| 10. Adjusting Entries and Exception Reports | Evaluate adjusting journal entries and exception reports for both direct and indirect costs. Evaluation for direct costs should include labor, ODCs, purchased services, and material (including subcontract costs and intracompany charges.) | To identify adjustments and/or exceptions that require further audit analysis and explanation. | 5-913.1, 6-305.3a(1), 6-404.6b(b), 6-608.2c(2). |
| Reserved | |||
| 12. Auditable Subcontract/Assist Audits | Evaluate auditable type subcontracts and intra-company orders issued by the contractor under auditable type Government contracts and subcontracts, and request any needed independent assist audits. | To protect the Government's interest concerning the ensuing costs. | 6-310.1, 6-802.2d (and J), 6-802.4a, 6-802.5, 6-803, 6-805, 6-806 |
| 13. Purchases Existence and Consumption | Make physical observations and/or inquiries on a concurrent basis in addition to documentation verification of contract charges for purchased materials and services. | To test that materials were in fact received (exist or were consumed) and that services were in fact performed. | 6-305.3a(2) |
| Example | Example | Example | Example |
| Example | Example | Example | Example |
| Example | Example | Example | Example |
| Example | Example | Example | Example |
| Example | Example | Example | Example |
MAARs 1, Internal Control Audit Planning Summary and/or Internal Control Questionaire
- Objectives:
Document/update in the permanent files the internal control audit planning summary and/or the internal control questionaire and evaluate changes in contractors internal controls.
- Purpose:
Determine the extent of reliance that can be placed on the internal controls for contract costs and the need for and extent of substantive testing that may be required based on the observed strengths or weaknesses of contractor systems.
- DCAM Reference:
3-300, 5-100, 5-111
MAARS 2, Contract Cost Analysis and Reconciliation to Books
- Objectives
Evaluate summaries of the contractor’s total annual contract costs by major cost element (material, subcontracts, intracompany charges, and credits, etc.), and verify that the auditable contract costs reconcile to contractor accounting records by cost element (typically using work-in-process or other contract control accounts in the general ledger).
- Purpose
To provide an overview and order-of-magnitude frame of reference for direction of audit effort and other audit planning/performance considerations, and to verify that the auditable costs claimed or to be claimed on Government contracts tie in to the amounts produced by the accounting system in the contractor’s official books and records.
References and Notes
- ↑ Defense Contract Audit Manual (DCAM)
