cost accounting standards part iii: the cost assignment ... · pdf filegovernment contracting...

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Cost Accounting StandardsPart III: The Cost Assignment and

Measurement Standards

Bill Walter, Partner


Agenda

• Session I – Administration:

– CAS Overview

– Applicability

– Types of Coverage

– CAS Administration

• Part II - The Cost Allocation Standards

• Part III - The Cost Assignment and

Measurement Standards

• Part IV - The CAS Disclosure Statement

©2017 Dixon Hughes Goodman, LLP


A Quick Review – Part I

• Contracts, not contractors, are subject to

CAS!


Contract Subject to

CAS?

Modified vs. Full

Disclosure Statement

10 Exemptions listed in 9903.201-1(b)

$50 million threshold

Full – yes – Modified - maybe


Legal Decision – Materiality and CAS

• Raytheon Company, Space and Airborne Systems, ASBCA No. 58608 (August 19, 2016)

– The ASBCA held that the CO had abused her discretion by failing to consider all the materiality factors listed in FAR 9903.305 in determining whether increased costs to the government resulting from an accounting practice change were material.

– FAR 30.602 states that if a contractor proposes to make a unilateral accounting practice change, the contracting officer will follow certain procedures in FAR Part 30 if the change has a material impact

– In determining whether the impact is material, contracting officers are to follow FAR 9903.305, which lists several factors to consider in determining materiality, one of which is the absolute dollar amount involved.

– Raytheon contended that the cost increase to the government was immaterial

– The ACO determined the increase to be material because of the dollar amount of the overpayment.

– The Board observed that the dollar impact per contract was only approximately $34 a year.

– Board’s analysis of the interplay between what it called the “four headed monster”:

• the CAS statute

• the CAS Board rules

• FAR contract clauses and

• FAR Part 30.



The “Cost Assignment and Measurement” – Cost Accounting

Standards


The Format of the Standards

• Purpose (.20)

• Definitions (.30)

• Fundamental Requirement (.40)

• Techniques for Application (.50)

• Illustrations (.60)

• Interpretation (.61)

• Exemption (.62)

• Effective Date (.63)



Asset Accounting Standards

• CAS 404 - Capitalization

• CAS 409 - Depreciation

• CAS 417 - Self constructed assets



CAS 404, Capitalization of Tangible Assets

• Requires a written policy for capitalization

• Minimum service life of 2 years and $5,000

• Define asset accountability units

• Different criteria allowed for initial complement provided that it is reasonable

• Asset value includes cost of putting into service

• Special requirements for business combinations

• Effective date: April 15, 1996 or first full fiscal year after receipt of a covered contract



Excelis, Inc., ASBCA No. 60131 (8/29/16)

• A dispute centered on whether the lease of a building should be

treated as a capital lease or an operating lease

– Excelis argued that the lease was an operating lease, but the government

determined that the lease was a capital lease

– The government claimed that Excelis was in non-compliance with CAS 404

– The Board stated that it interprets contract terms, including incorporated CAS, in

accordance with their plain terms.

• CAS 404 deals with tangible assets

– ASBCA held that the asset was the lease - an intangible asset, not the building.

– Since the asset in question was an intangible asset, CAS 404 did not apply.

• No recovery from Excelis for CAS non-compliance

• FAR 31.205-11 was also at issue in Excelis and is based in substantial part on

CAS 404 and makes specific reference to the CAS. Since the present decision

dealt with a procedural issue, the Board did not rule on whether the

government was entitled to any recovery under the cost principle.



CAS 409, Depreciation of Tangible Capital Assets

• Depreciable base = capitalized cost - residual value

• Estimated useful life must approximate the pattern of consumption of the asset

• Direct only if charges are based on usage and all assets of that class are treated the same

• Gain or loss charged or credited to the same pool that was charged for the depreciation

• Effective date: April 15, 1996 or first full fiscal year after receipt of a covered contract



CAS 417, Cost of Money as an Element

of the Cost of Capital Assets Under Construction

• The cost of money associated with self

constructed assets will be included in the

capitalized acquisition cost of the asset

• Secretary of the Treasury interest rate is

used to compute the amount to be

capitalized

• Effective date: The first full fiscal year after

receipt of a covered contract



Compensation Standards

• CAS 408 - Compensated absences

• CAS 412 & 413 - Pensions

• CAS 415 - Deferred compensation



CAS 408, Accounting for Costs of Compensated

Personal Absence

• The cost of compensated personal

absences will be allocated to the cost

accounting period in which the entitlement

is earned

• The cost for an entire accounting period

will be allocated pro-rata to all final cost

objectives

• Effective date: Next full cost accounting

period after a covered contract is received



CAS 412, Composition and Measurement of

Pension Cost

• Components of defined benefit plan– normal cost of the period

– a part of any unfunded actuarial liability

– an interest equivalent on the unamortized portion of any unfunded actuarial liability

– an adjustment for actuarial gains and losses

• Components of a defined benefit plan is the contribution made for that period

• The amount of pension cost for defined benefit plan shall be determined by the use of an immediate-gain actuarial cost method

• The amount of pension costs for a cost accounting period are assignable only to that period

• Costs are allocable to the extent that they are funded

• Effective date: March 30, 1995 - Next cost accounting period



CAS 413, Adjustment and

Allocation of Pension Cost

• Actuarial gains and losses will be calculated

annually and will be assigned to the cost

accounting period for which the actuarial

valuation is made

• Asset valuation method has to consider

unrealized appreciation and depreciation

• Pension costs shall be allocated to segments

that have participants in the pension plan

• Effective date: March 30, 1995 - Start of next

cost accounting period



CAS 415, Accounting for the

Cost of Deferred Compensation

• Deferred compensation recognized in the

period in which the employer incurs an

obligation to pay

• If no obligation to pay the deferred

compensation will be recognized when paid

• The measurement of deferred compensation

is the present value of the future payments to

be paid by the contractor





Other Standards

• CAS 411 - Material Costs

• CAS 416 - Insurance Costs



CAS 411, Accounting for Acquisition

Costs of Material

• Requires written policies and procedures

• The cost material can be directly charged

provided the cost objective was

specifically identified at the time of

purchase or production

• Same costing method shall be used within

the same business unit for similar

categories of material



CAS 416, Accounting for Insurance Costs

• The amount of insurance cost to be

assigned to a cost accounting period is the

projected average loss for the period plus

insurance administrative costs

• Insurance costs are to be allocated to cost

objectives on a causal or beneficial

relationship





Questions & Answers


Bill Walter


Bill Walter, CPA

PartnerGovernment Contract Advisory Practice

Dixon Hughes Goodman LLP1410 Spring Hill Road, Suite 500

Tysons, VA 22102

D. 703.970.0509

[email protected]

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