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OPINION
F or architecture, engineering, and other professional services firms working with state Departments of Transportation, preparing a compliant overhead rate is a critical step in securing and maintaining contracts. Missed deadlines, unexpected costs, and rejected rates can derail a project before it even begins. Understanding the difference between FAR overhead audits and compilations helps AEC firms secure DOT contracts and avoid costly setbacks. FAR overhead audits vs. compilations
Robert Jones, CPA, CPCM
Whether your firm is new to government contracting or transitioning out of a Safe Harbor program, understanding the difference between a FAR overhead compilation and a FAR overhead audit, and preparing accordingly, can save time, reduce costs, and ensure timely approvals. WHAT IS A FAR OVERHEAD COMPILATION? A FAR overhead compilation is a financial statement prepared by a firm’s accountant that calculates the indirect cost rate (also known as the overhead rate) in accordance with the Federal Acquisitions Regulation (FAR) Part 31. This rate is used to determine allowable overhead costs that can be billed to government contracts. Unlike an audit, a compilation does not involve testing or verification by an independent CPA. Instead, it is a presentation of financial data provided by management, formatted to meet the requirements of FAR and the AASHTO Uniform Audit & Accounting Guide.
Some state DOTs, particularly for smaller or newer firms, may accept a compilation in lieu of an audit, especially for firms exiting Safe Harbor programs or those with limited government contract activity. WHAT IS A FAR OVERHEAD AUDIT? A FAR overhead audit is a formal examination of a firm’s indirect cost rate scheduled by an independent CPA. The audit must be conducted in accordance with Generally Accepted Government Auditing Standards (GAGAS), also known as the Yellow Book, and must evaluate compliance with:
FAR Part 31 cost principles
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Cost Accountant Standards (CAS)
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AASHTO Audit Guide requirements
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State-specific regulations, where applicable
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See ROBERT JONES, page 4
THE ZWEIG LETTER OCTOBER 6, 2025, ISSUE 1604
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