Contractors—Federal Government

ASC 912 layers incremental industry guidance for entities that contract with the U.S. federal government on top of otherwise applicable GAAP. The Overall subtopic (912-10) defines scope—all entities with federal contracts, and specifically cost-plus-fixed-fee contracts and fixed-price war and defense supply contracts terminated for the government's convenience—and explains the special risks of dealing with a sovereign customer that procures under complex statutes and regulations (912-10-05-5, 15-1 through 15-4). The Contract Costs subtopic (912-20) then supplies the cost accounting rules: Federal Acquisition Legislation and Regulation cost principles govern whenever cost analysis is performed in pricing or repricing (912-20-05-2, 05-3), indirect costs allowable under government regulations may be allocated to federal contracts only if also allowable under GAAP (912-20-25-1), subcontractor/vendor claims are liabilities measured under Subtopic 450-20 (912-20-25-3), and program accounting is generally not appropriate (912-20-25-5A, 25-8). The single most important idea is that a default termination is accounted for prospectively: any reduction of previously recorded earnings is a change in accounting estimate included in the current-period loss on termination under Subtopic 250-10—never a prior-period adjustment—and that loss must be presented separately or disclosed (912-20-25-5, 45-5, 50-1).

Subtopics

1. 10Overall10 ¶

   ASC 912-10 is the Overall subtopic of the Contractors—Federal Government Topic, which layers incremental industry guidance on top of otherwise applicable GAAP for entities doing business with the U.S. federal government. It explains that the federal customer is a sovereign that procures under statutes and regulations governing contractor selection, monitoring, and payment, creating risks not present in commercial dealings. Its scope covers all entities with federal government contracts, specifically cost-plus-fixed-fee contracts and fixed-price war and defense supply contracts terminated for the convenience of the government.

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2. 20Contract Costs22 ¶

   ASC 912-20 governs how contractors with the federal government account for contract costs, including the requirement to follow Federal Acquisition Regulation cost principles when costs are analyzed in the procurement process. It addresses allocation of indirect costs, recording of subcontractor/vendor claims, accounting for terminations (convenience versus default), and restricts the use of program accounting. Losses from default terminations are treated as changes in accounting estimate in the current period, not as prior-period adjustments.

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