3
OPINION
Why GAAP compliance matters
Government contractors in AEC must understand and follow GAAP to meet compliance standards, secure contracts, and ensure accurate financial reporting.
A s government contract opportunities continue to grow for architecture, engineering, and consulting (AEC) firms, the pressure to meet federal compliance standards accelerates. One of the first hurdles many firms encounter is demonstrating a GAAP-compliant accounting system . This isn’t just a best practice; it’s a non-negotiable requirement for passing the SF 1408 Preaward Survey and securing flexibly priced contracts. Whether you’re new to government contracting or preparing for more complex awards, understanding GAAP is foundational to your Federal Acquisition Regulation (FAR) readiness.
Robert Jones, CPA, CPCM
WHAT IS GAAP? GAAP stands for Generally Accepted Accounting Principles . Specifically, we’re focusing on GAAP for companies based and reporting in the U.S. GAAP is a set of rules developed and maintained by the Financial Accounting Standards Board (FASB) to ensure that financial statements are complete, consistent, and comparable across different companies. It provides a standardized framework for the presentation of financial statements, with the FASB’s Accounting Standards Codification (ASC) serving as the single source of authoritative non-government U.S. GAAP. WHEN AND WHY GAAP COMPLIANCE IS REQUIRED. While GAAP applies to publicly traded companies and many private companies in the U.S., its relevance for government contractors is pronounced. The U.S. SEC requires publicly traded companies to file GAAP- compliant financial statements regularly. For private companies, GAAP compliance becomes essential when issuing financial statements outside the organization, particularly when these statements involve government contracts or other external reporting requirements. It’s important to note that the SF 1408 Preaward Survey of Prospective Contractor (Accounting System) requires GAAP compliance to achieve and maintain an adequate accounting system for government contracts. This foundational requirement ensures transparency and accountability for federal funds.
We often find clients contact us regarding GAAP compliance for three common reasons: 1. Loan covenants. When obtaining new or increased financing, such as a line of credit or term loan, banks frequently require reviewed or audited GAAP-compliant financial statements as a loan covenant. While thresholds vary, we typically see this requirement emerge as debt facilities or loan values approach $5 million, though many lenders will accept internally prepared or externally compiled statements below that amount. 2. Regulatory audits. As government contractors, your firm is subject to various regulatory audits, including FAR overhead audits, incurred costs proposal audits, and the SF 1408 survey (which, while technically a survey, functions as a critical assessment). All of these necessitate the adoption and adherence to GAAP as it applies to your firm. 3. Investor relations. Whether you’re considering an internal transition, a sale to outside parties, or a merger with another firm, investors – internal or external – will analyze your financial statements and expect them to be GAAP-compliant so they accurately compare with others in your industry and within their broader investment portfolios.
See ROBERT JONES, page 4
THE ZWEIG LETTER AUGUST 18, 2025, ISSUE 1598
Made with FlippingBook flipbook maker