Criteria for an Adequate Accounting System (DFARS 252.242-7006)

(c) System criteria. The Contractor’s accounting system shall provide for—

(1) A sound internal control environment, accounting framework, and organizational structure;
(2) Proper segregation of direct costs from indirect costs;
(3) Identification and accumulation of direct costs by contract;
(4) A logical and consistent method for the accumulation and allocation of indirect costs to intermediate and final cost objectives;
(5) Accumulation of costs under general ledger control;
(6) Reconciliation of subsidiary cost ledgers and cost objectives to general ledger;
(7) Approval and documentation of adjusting entries;
(8) Management reviews or internal audits of the system to ensure compliance with the Contractor’s established policies, procedures, and accounting practices;
(9) A timekeeping system that identifies employees’ labor by intermediate or final cost objectives;
(10) A labor distribution system that charges direct and indirect labor to the appropriate cost objectives;
(11) Interim (at least monthly) determination of costs charged to a contract through routine posting of books of account;
(12) Exclusion from costs charged to Government contracts of amounts which are not allowable in terms of Federal Acquisition Regulation (FAR) part 31, Contract Cost Principles and Procedures, and other contract provisions;
(13) Identification of costs by contract line item and by units (as if each unit or line item were a separate contract), if required by the contract;
(14) Segregation of pre-production costs from production costs, as applicable;
(15) Cost accounting information, as required—

(i) By contract clauses concerning limitation of cost (FAR 52.232-20), limitation of funds (FAR 52.232-22), or allowable cost and payment (FAR 52.216-7); and
(ii) To readily calculate indirect cost rates from the books of accounts;
(16) Billings that can be reconciled to the cost accounts for both current and cumulative amounts claimed and comply with contract terms;
(17) Adequate, reliable data for use in pricing follow-on acquisitions; and
(18) Accounting practices in accordance with standards promulgated by the Cost Accounting Standards Board, if applicable, otherwise, Generally Accepted Accounting Principles.