Indirect Cost Series: Part Four – Over/Under Application of Indirect Costs

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This is part four of a five part series on indirect costs.

Audit professionals typically approach financial statement information from an external reporting viewpoint . With most contracts, we review a client’s position as of their year-end date. From a cost accounting perspective, however, contracts should be looked at monthly to determine accurate contract status. This includes comparing actual costs incurred (including direct and indirect costs) to budgeted costs to determine variances. This brings us to the concepts of “under application” and “over application” of indirect costs. If indirect costs are under applied, it means that the actual amount of …read more

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