Today we conclude our discussion (at least for awhile) on MAARs, Mandatory Annual Audit Requirements. MAARs are minimum audit procedures that must be applied to reviews of contractors' annual incurred cost submissions in order for the review to be considered compliant with GAGAS (Generally Accepted Government Auditing Standards). Audit working papers usually contain checklists to ensure that each and every applicable MAAR was covered, either in that particular review or in another audit. The first five parts in this series can be read here:
- Part I - Introduction
- Part II - Timing
- Part III - MAARs #1 - 4
- Part IV - MAARs #5 - 8
- Part V - MAARs #9 - 13
MAAR #14 - Pools/Base Reconciliation to Books. The purpose of this procedure is to determine that the claimed indirect cost pools and allocation bases under Government contracts reconcile to amounts in the contractor's official books and records. This is why auditors will often request the "trail balance" when determining adequacy of an annual submission.
MAAR #15 - Indirect cost comparison with prior years and budgets. The purpose of this procedure is to identify changes in cost accounting practices, reclassification of costs, and areas with substantial increases or decreases in costs that require further audit analysis and/or explanation. Auditors will often ask contractors to prepare a comparison showing current year and prior year's costs by account. Significant changes either up or down will prompt at least a query.
MAAR #16 - Indirect account analysis. This is likely the area that an auditor will spend the most time during an audit of incurred costs. The auditor needs to obtain sufficient evidence to support an opinion on the allowability, allocability, and reasonableness of the costs. The auditor will concentrate on sensitive accounts, new accounts and accounts with large variances.
MAAR #17 - Reserved. Initially, this MAAR involved IR&D/B&P computations. At one time, there were limits to how much a contractor could claim on Government contracts and this involved formulas and comparisons with prior years. After those limits were eliminated in the FAR cost principles, this MAAR was dropped.
MAAR #18 - Indirect allocation bases. The purpose of this MAAR is to assure that allocation bases are equitable for allocation of indirect costs to intermediate and final cost objectives. The focus here is on whether indirect costs are allocated to cost objectives on a "causal and beneficial" basis.
MAAR #19 - Indirect rate computations. The purpose here is to confirm that the contractor's rate computations are accurate for distributing indirect costs to Government contracts. Most contractors use Excel-based models to submit their annual incurred cost claims. These models are moderately complex and errors commonly occur.
MAAR #20 - Reserved. At one time, this MAAR required auditors to review adjusting journal entries that involve indirect expenses. It has now been merged into MAAR #10 which requires auditors to review all adjusting journal entries.
The MAARs provide auditors a kind of road map on how to approach their audits of incurred costs. Knowing the various MAARs should aid contractors in preparing for an audit.