Contracts funded by the U.S. Government are subject to the Federal Acquisition Regulations (FAR). Whether a prime contract, subcontract, or grant (or cooperative agreement), FAR compliance is mandated by the terms and conditions. Audits performed by DCAA or financial auditors from other federal agencies evaluate whether costs on one or more prime contract, subcontract, or grant adhere to all applicable regulations (FAR Compliance and compliance with all applicable supplemental regulations) and Public Laws.
FAR encompasses rules on how the government may procures goods and services (including definitions of contract types) plus rules on how suppliers of those goods and services propose, record in accounting ledgers, and invoice for them. Part 30 describes criteria for a contract (or contractor) becoming fully covered by the Cost Accounting Standards; Part 31 explains cost accounting rules, even if not covered by Part 30. The contractor’s purchasing rules are discussed in Part 44. Part 42 describes responsibilities of the (typically geographically near the contractor) Administrative Contracting Officer (ACO), as opposed to the (buying command) Procurement Contracting Officer (PCO or CO). While the PCO (or appointed Contracting Officer’s Representative [COR] or Contracting Officer’s Technical Representative [COTR]) oversees technical methods and achievements plus pre-award and award administrative issues, the ACO oversees the administration of post-award FAR compliance issues for the supplier organization, as a whole.
A Contracting Officer is the requestor of each audit by the Defense Contract Audit Agency or other auditors and each grant review (on behalf of the funding agency). Such audits and reviews evaluate evidence that the contractor is adhering to all applicable federal acts and regulations. Because the contractor signed a proposal, contract, invoice, or other document certifying FAR compliance, the burden of proof (to demonstrate full compliance) is on the contractor.
In addition to FAR, many federal agencies require compliance with their supplemental regulations. For example, Department of Defense FAR Supplement (DFARS) compliance is added to their terms and conditions. Also, note that FAR 31.2 is for commercial organizations. Nonprofit organizations, educational institutions, and governments comply with their applicable Office of Management and Budget circulars, as instructed by other sections of FAR Part 31.
In addition to accounting requirements in Parts 30 and 31, contract types are described in Part 16. Commonly used definitions are in Part 2.101. The broad requirements of FAR, in chronological order, can be found at: https://www.acquisition.gov/?q=browsefar.