How FAR 31.2 Affects Your Accounting Practices
If you’re a government contractor, understanding FAR 31.2 is essential to maintaining compliance and protecting your profitability. FAR 31.2—the section of the Federal Acquisition Regulation that governs the contract cost principles and procedures for commercial organizations—lays the foundation for how expenses should be recorded, classified, and billed under federal contracts.
For contractors in the GovCon space, FAR 31.2 affects your accounting practices in several key ways:
- It defines which costs are allowable and unallowable
- It outlines the requirements for allocating indirect costs
- It mandates consistency in accounting treatment across contracts
- It requires a system capable of segregating direct, indirect, and unallowable costs
Ignoring FAR 31.2—or misunderstanding its implications—can lead to disallowed costs, failed audits, and serious contract risk. For example, including unallowable expenses like entertainment or personal use of assets in your indirect cost pool could result in financial penalties or repayment demands.
Your accounting system must be designed with FAR 31.2 in mind, especially if you’re dealing with cost-type contracts or facing DCAA oversight. Clear policies, accurate timekeeping, and a well-structured chart of accounts are essential.
At N5 Specialized Accounting Services & Support, we help contractors align their accounting practices with GovCon FAR 31.2 requirements—ensuring accuracy, compliance, and audit-readiness.
