When the contractor’s estimates or the auditor’s approach are based on historical costs and annual incurred cost audits have not been completed for several of the applicable years, auditors should perform procedures to test the underlying historical data (or identify in a previous proposal or other audits where sufficient procedures were performed to test the applicable historical data). The first step is to identify the historical costs underlying the cost estimates being evaluated. Then, audit procedures should be designed to ensure that the proposed cost and rates for those areas reasonably comply with the applicable FAR and CAS requirements (but not a full incurred-cost audit).
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