14. COST ACCOUNTING STANDARDS
Cost Account Standards (CAS) are complex, misunderstood, and often used with apprehension by people in the procurement profession. However, the analyst must be familiar with the standards to understand Defense Contract Audit Agency (DCAA) reports regarding CAS findings and to advise the contracting officer (CO)/Integrated Product Team (IPT) of their impact. This chapter will familiarize the reader with CAS. It will not discuss the details of each individual standard but will provide an easy-to-use summary of each standard. Any analyst desiring or requiring a deeper understanding should review 48 CFR 9904.
Appendix 14A highlights Cost Accounting Standards. This chapter will provide a greater understanding of these Cost Accounting Standards by covering the following topics:
* Background & history,
* CAS versus cost principles,
* Types of coverage,
* Disclosure statements,
* Implementation, and
* Standards summary.
14.2 Background & History
The CAS are a result of concern for the pricing and accounting practices of defense contractors. There was no consistency within and between contractorsí cost accounting practices, making it difficult to conduct standard audits. In 1968, Congress asked the General Accounting Office (GAO) to study the feasibility of establishing and applying CAS to provide greater uniformity in cost accounting as a basis for negotiating and administering procurement contracts. The GAO concluded that it was indeed feasible and recommended Government-wide coverage on both fixed-price and cost-type contracts. Congress subsequently established the Cost Accounting Standards Board (CASB), which in turn instituted the CAS. After the standards were implemented in 1980, Congress decided the Board had fulfilled its mission and dissolved it. The board was re-established in 1988. The CASB will be further discussed in section 14.2.2.
CAS were designed to achieve uniformity and consistency in the measurement, assignment, and allocation of costs to Government contracts. The standards were based on examinations of common cost accounting practices throughout the industry. Advice and comments were sought from Government agencies, industry, and professional accounting associations. Numerous publications on the subject were also reviewed. CAS is not, therefore, an onerous set of Government rules, regulations, and requirements. CAS does not provide rigid, inflexible procedures. In fact, most standards provide numerous options in accounting techniques. The GAO recognized the impossibility of implementing precise methods or techniques in its recommendation to Congress. CAS does establish limits and constraints on what is considered appropriate, allowing the CAS to meet the goal of providing consistency and uniformity in cost accounting. Listed below are the standard definitions of the three areas of Cost Accounting.
The Three Areas of Cost Accounting (48 CFR 9903.302-1)
Measurement of Costinvolves the methods and techniques used in defining the components of cost, determining the basis of cost measurement, and establishing criteria for use of alternative cost measurement techniques. Examples of cost measurement are listed below:
* The use of historical cost, market value, or present value;
* The use of standard or actual cost; or
* The designation of items of cost which must be included or axcluded from tangible assets or pension cost.
Assignment of cost to cost accounting period refers to the method used in determining the amount of cost to be assigned to individual cost accounting periods. Examples are the requirements for use of accrual basis or cash basis accounting.
Allocation of cost to cost objectives refers to the method of determining direct and indirect allocation of cost. Examples of allocation issues are listed below:
* The accumulation of costs;
* The determination of whether to charge costs direct or indirect; or
* The determination of the composition of cost pools and their allocation bases.
14.2.2 The Cost Accounting Standards Board (CASB)
Congress re-instituted the CASB in 1988 as a permanent and independent board and assigned it to the Office of Federal Procurement Policy (OFPP) in the Office of Management and Budget (OMB). The CASB was given exclusive authority to make, promulgate, amend, and rescind cost accounting standards and regulations. The five-member board is chaired by the OFPP Administrator with one representative from the Department of Defense and one from the General Services Administration. The remaining two members are from the private sector. One is from industry and the other is a cost accounting expert. A quorum consists of three members, one of which must be from the private sector. Each board member, with the exception of the Chairman, serves a 4-year term. The OFPP Administrator (Chairman) must ensure that no agency regulation is inconsistent with CAS. Costs subject to CAS cannot be subject to other agency regulations that differ in the measurement, assignment, and allocation of costs.
14.2.3 FAA Cost Accounting Standards Reform
According to FAA AMS section 220.127.116.11.2, the FAA guidelines for CAS are: 1.) CAS do not apply to commercial items and 2.) Full or modified CAS coverage may be applied to cost type contracts only.
14.4 Cost Accounting Standards versus Cost Principles
CAS and cost principles are not one and the same. As previously mentioned, CAS addresses cost accounting--the measurement, assignment, and allocation of costs to Government contracts. The cost principles address cost allowability. Cost allowability is a procurement matter and is a function of law, regulation, or individual contracts. Costs may be allocable but unallowable.
Some of the cost principles have directly incorporated certain cost accounting standards. If costs related to these principles are not accounted for in accordance with CAS, then the cost is unallowable. Table 14-2 shows the link between certain principles and CAS.
CAS 1 to CAS 4
Cost accounting Standard