As the end of the year quickly approaches, many government contractors turn their attention to year-end planning. Rather than focusing on the usual end of year checklists that address year-end close activities, we’d like to discuss some of the areas that might be overlooked this year.
For any annual or fiscal reporting periods after December 15, 2021, businesses and organizations will need to implement the new lease accounting standards, ASC 842, unless the entity implemented at an earlier time. The standards require an entity that leases assets to recognize the assets and liabilities for the rights and obligations created by those leases when they have terms for more than one year. If this applies to you, what are your next steps?
For more resources on the standards and implementation, take a look at our New Lease Accounting Standards articles.
If you are planning to issue year-end bonuses to staff or process discretionary contributions to retirement plans, be sure to calculate the effect these transactions and their timing will have on your indirect cost rates. Any unplanned or unproportioned change to either the base or the total pool costs will inadvertently cause the actual rates to fluctuate, thus affecting the intended contract profitability results, especially if the entity is operating with preapproved or contract fixed rates.
Most government contractor businesses already plan to take actions to reduce taxability before year-end. All government contractors should remember to ask the following questions:
The approaching year-end is a great time to review accumulated data throughout the year and determine whether it is reliable and complete to be used for additional analytics. It is also the time to examine if new models or analytics should be used on the data to provide answers for more informed management decisions as they relate to activities, customers, projects or the entity as a whole.
The end of the year tends to be a busy time for all organizations and businesses, but it is also an opportune time to evaluate activities and results and take corrective actions in the new year. Whether you choose to analyze accumulated data, discuss strategies with outside partners (likely your professional advisor) or engage in financial planning and assessments, do not miss the opportunity to reflect and renew. Reach out to our government contractor experts with any questions and be on the lookout for additional insights for government contractor professionals.
Learn about indirect cost rates and why they change here.
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