How to Record Incurred Cost Audit Reserves
Establishes a reserve for potential disallowances identified during an ongoing DCAA Incurred Cost Proposal (ICP) audit.
| Account Name | Type | Debit ($) | Credit ($) |
|---|---|---|---|
| Provision for Disallowed Costs (Contra-Revenue) | Revenue | 50,000.00 | - |
| Reserve for Audit Adjustments | Liability | - | 50,000.00 |
💡 Accountant's Note
If an audit indicates that certain indirect costs are likely to be questioned and sustained, a reserve is recorded to reflect the estimated liability to the government.
Practitioner & Systems Framework
💻 ERP Architecture
Record this at the corporate level, often mapped to a non-billable project code to prevent it from being included in current billing rates.
⚠️ Audit Flags
Receipt of a Form 1 or 'Draft Questioned Costs' memo from DCAA.
📄 Required Documentation
Audit status reports, legal/consultant opinions, and probability of loss analysis.
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Discussion & Community Questions
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