(Editor’s Note. Many of our clients and subscribers have been, are or will be going through restructuring arrangements – mergers, acquisitions, divestments, reorganizations with other entities, etc. – and the rules covering allowability of the resulting costs are quite confusing. The confusion often centers around "external organizations" versus "internal organizations" and when is a cost versus benefit analysis needed to make restructuring costs allowable. Even when that hurdle is surmounted there are a variety of specific FAR cost principles related primarily to facilities and compensation costs as well as cost allocation issues that present additional barriers to recovering these costs. We will present some background information on the regulations and consider what auditors will likely be looking at in making a determination of whether the resulting costs are allowable. The source of this article is a variety of texts including our favorite "Accounting for Government Contracts" by Lane Anderson and the July 2002 version of the DCAA Contract Audit Manual (the relevant sections have been updated from earlier versions).

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