ASC 912-10

Overall

912 Contractors—Federal Government

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In brief

IntermediateIndustry-specific Recognition Contingencies and guarantees Revenue

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.

Key points (7)

This Topic provides only incremental industry-specific guidance; entities within its scope must also comply with all other applicable GAAP standards (912-10-15-1).
The term 'contractor' means either a prime contractor or subcontractor, and 'contract' means either a prime contract or subcontract, unless the text clearly indicates otherwise (912-10-15-1).
The guidance applies to all entities engaging in federal government contracts (912-10-15-2), and specifically to cost-plus-fixed-fee contracts and to fixed-price war and defense supply contracts terminated in whole or in part for the convenience of the government (912-10-15-3).
The terminated fixed-price war and defense supply contract guidance does not specifically apply to terminated cost-plus-fixed-fee contracts or contracts for facilities or services, but may serve as a guide for them (912-10-15-4).
Government contractors face risks beyond their industry risks, including complex cost accounting regulations, penalties even for immaterial violations (e.g., False Claims Act), frequent government scrutiny of business and accounting practices, and unilateral government rights (912-10-05-5).
Where contracts or contract changes are negotiated based on cost, cost accounting considerations drive pricing, contract administration, and thus reported financial position and results of operations (912-10-05-5(d)).
Several subtopics and scope subparagraphs (including revenue-related guidance) were superseded by ASU 2014-09, and related industry guidance appears in Subtopic 910-20 (912-10-05-1, 912-10-05-2).

For students. Remember that ASC 912 is only an overlay: it never replaces mainstream GAAP, so you must first apply ASC 606, 340-40, etc., then add these federal-contracting specifics. A common misunderstanding is treating ASC 912 as a self-contained revenue model—much of its old revenue guidance was superseded by ASU 2014-09.

government contractor cost-plus-fixed-fee contract termination for convenience prime contractor and subcontractor cost accounting regulations incremental industry guidance procurement statutes and regulations unilateral government rights

Machine-generated study aid for ASC 912-10. Check the source paragraphs below.

912-10-00Status

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912-10-00-1

The following table identifies the changes made to this Subtopic.

Paragraph	Action	Accounting Standards Update	Date

912-10-05-2	Amended	Accounting Standards Update No. 2014-09	05/28/2014
912-10-15-3	Amended	Accounting Standards Update No. 2014-09	05/28/2014

912-10-05Overview and Background

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912-10-05-1

The Contractors—Federal Government Topic provides incremental guidance for government contractors. See also Subtopic 910-20.

912-10-05-2

This Topic includes the following Subtopics:

a
Overall
b
Contract Costs
c
Subparagraph superseded by Accounting Standards Update No. 2014-09.
d
Income Statement
e
Subparagraph superseded by Accounting Standards Update No. 2014-09.
f
Changing Prices
g
Risks and Uncertainties
h
Receivables
i
Inventory
j
Liabilities
k
Contingencies
l
Subparagraph superseded by Accounting Standards Update No. 2014-09.
m
Cost of Sales and Services
n
Compensation—Retirement Benefits
o
Research and Development
p
Interest.

912-10-05-3

Entities electing to do business with the federal government will find a customer who behaves, in some significant ways, very differently from commercial customers. This unique behavior results from the customer being a sovereign power that conducts its procurement activities under specific laws and implementing regulations. These procurement statutes and regulations govern the process the federal government must follow in its business dealings with private industry. They cover such critical matters as how the federal government selects, monitors, and pays its contractors.

912-10-05-4

While most industries include entities that are government contractors, certain industries are more heavily involved in providing goods and services to the government. These industries include manufacturing, architect-engineering, professional services, construction, aerospace, shipbuilding, and technology.

912-10-05-5

Entities engaged in government contracting are subject to the risks associated with their respective industries, as well as additional risks that generally are not encountered by other business entities in the commercial sector. These additional risks are caused principally by the highly regulated environment in which government contractors operate. Such risks include, but are not necessarily limited to, all of the following:

a
Contractors are subject to extensive and complex cost accounting and other regulations, and in some circumstances, significant penalties even for violations of relatively immaterial dollar amounts (such as penalties under the False Claims Act).
b
Business and accounting practices are subject to frequent scrutiny by the government.
c
The government has unilateral rights not found in commercial relationships.
d
If contracts or contract changes are negotiated based on cost, cost accounting considerations play a vital role in pricing and administering government contracts and, consequently, determining the contractor's reported financial position and results of operations.

912-10-15Scope and Scope Exceptions

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Overall Guidance

912-10-15-1

The Subtopics within the Contractors—Federal Government Topic only provide incremental industry-specific guidance for the entities defined in this Scope Section, or as further defined in the Scope Sections of the individual Subtopics. Entities within the scope of this Topic shall also comply with the applicable standards not included in this Topic. Except where the text clearly indicates otherwise, the term contractor is used to denote either a prime contractor or a subcontractor, and the term contract to denote either a prime contract or a subcontract.

Entities

912-10-15-2

The guidance in this Topic applies to all entities that engage in federal government contracts.

Transactions

912-10-15-3

The guidance in this Topic applies to all of the following transactions and activities:

a
Cost-plus-fixed-fee contracts
b
Subparagraph superseded by Accounting Standards Update No. 2014-09.
c
Fixed-price war and defense supply contracts terminated, in whole or in part, for the convenience of the government.

912-10-15-4

The guidance in this Topic with respect to fixed-price war and defense supply contracts terminated, in whole or in part, for the convenience of the government does not specifically apply to terminated cost-plus-fixed-fee contracts nor to contracts for facilities or services. However, the conclusions reached herein may serve as guides for the accounting applicable to such contracts.