cost accounting standards don't have to be a mystery!

Cost Accounting Standards Don’t Have to Be a Mystery!

http://blogs.aronsonllc.com/fedpoint/

Nicole Mitchell & Aisha Mian | June 2, 2016

2© 2016 | www.aronsonllc.com | www.aronsonllc.com/blogs |

Agenda

• History

• Cost Accounting Standards Board (CASB)

• Cost Accounting Standard (CAS) Coverage

• CAS Requirements

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History

• 1968 – Admiral Rickover – Uniformity and consistency– After a year of study the Comptroller General recommended

uniform standards be developed• 1970 – Congress created the CAS Board (CASB)• 1980 – Congress did not renew funding• 1981 – CAS Board ceases its operation– DoD took responsibility

• 1980-1988– Disputes emerged, highlighting the need to reestablish the CASB

• 1988 – Congress reestablishes the CASB







Cost Accounting Standards Board

• Purpose– The Board has exclusive authority to make, promulgate, and

amend cost accounting standards.

• Members: – (Chair) – Office of Federal Procurement Policy Administrator– Department of Defense (DoD) Representative– General Services Administration Representative– Accounting profession Representative– Industry Representative







Cost Accounting Standards Board

Activities of the Board:– Harmonization of CAS 412 and 413 with the Pension Protection

Act of 2006– Exemption from CAS for contracts and subcontracts for the

acquisition of commercial items– Exemption from CAS for FFP contracts and subcontracts

awarded without certified cost or pricing data– Change to the CAS applicability threshold for the inflation

adjustment to the Truth in Negotiations Act threshold– Removed exemption from CAS for contracts executed and

performed entirely outside the United States, its territories, and possessions







CAS Coverage

• CAS is applicable to contracts, not contractors– Distinction is important because of price adjustments– System for identifying CAS covered contracts

• Applicable to all contracts and subcontracts in excess of the Truth in Negations Act threshold (i.e. 750K) and not otherwise exempted.

• Subcontract Coverage– Prime contractor must flow-down the CAS clause to its subcontractors– Intercompany transfers shall be treated as a subcontract

• Well documented transfer agreement• System for determining CAS applicability







CAS Coverage

• Applicability is based on the original contract award

– Requirements contracts

– Indefinite Delivery Indefinite Quantity contract (IDIQ)

– Option Years







CAS Coverage

CAS Exemptions:1. Sealed bid contracts2. Negotiated contracts and subcontracts not in excess of the

Truth in Negotiations Act (TINA) threshold, as adjusted for inflation (41 U.S.C. 1908 and 41 U.S.C. 1502(b)(1)(B)). For purposes of this paragraph (b)(2), an order issued by one segment to another segment shall be treated as a subcontract.

3. Contracts and subcontracts with small businesses.4. Contracts and subcontracts with foreign governments or their agents

or instrumentalities or, insofar as the requirements of CAS other than 9904.401 and 9904.402 are concerned, any contract or subcontract awarded to a foreign concern.

5. Contracts and subcontracts in which the price is set by law or regulation.







CAS Coverage

6. Firm fixed-priced, fixed-priced with economic price adjustment (provided that price adjustment is not based on actual costs incurred), time-and-materials, and labor-hour contracts and subcontracts for the acquisition of commercial items.

7. Contracts or subcontracts of less than $7.5 million, provided that, at the time of award, the business unit of the contractor or subcontractor is not currently performing any CAS-covered contracts or subcontracts valued at $7.5 million or greater.

8-12. Reserved13. Subcontractors under the NATO PHM Ship program to be performed

outside the United States by a foreign concern.14. Reserved15. Firm-fixed-price contracts or subcontracts awarded on the basis of

adequate price competition without submission of cost or pricing data.







CAS Coverage

Types of CAS coverage

– Full CAS Coverage (all 19 standards)• Current award is $50M or more• Segment received $50M or more in its preceding cost

accounting period

– Modified CAS Coverage (only 4 standards)• CAS 401 • CAS 402• CAS 405• CAS 406







CAS Coverage







CAS Coverage

Link to CAS Coverage and Disclosure Statement Determination Flowchart can be found at:

• www.dcaa.mil Guidance Contract Audit Manual (CAM) Chapter 8 Cost Accounting Standards (P. 810)



http://www.dcaa.mil/





CAS Coverage

Cost Accounting Standards• 401 Consistency in estimating, accumulating, and reporting

costs• 402 Consistency in allocating costs incurred for the same purpose• 403 Allocation of home office expense• 404 Capitalization of tangible assets• 405 Accounting for unallowable costs• 406 Cost accounting period• 407 Use of standard costs for direct material and direct labor• 408 Accounting for costs of compensated personal absence• 409 Depreciation of tangible capital assets• 410 Allocation of business unit general and administrative expenses to

final cost objectives







CAS Coverage

• 411 Accounting for acquisition costs of material• 412 Composition and measurement of pension cost• 413 Adjustment and allocation of pension cost• 414 Cost of money as an element of the cost of facilities capital• 415 Accounting for the cost of deferred compensation• 416 Accounting for insurance costs• 417 Cost of money as an element of the cost of capital assets

under construction• 418 Allocation of direct and indirect costs• 419 Reserved• 420 Accounting for independent research and development

costs and bid and proposal costs







CAS Coverage

• Contract Clauses– 52.230-1 Cost Accounting Standards Notices and Certification– 52.230-2 Cost Accounting Standards– 52.230-3 Disclosure and Consistency of Accounting Practices– 52.230-4 Disclosure and Consistency of Accounting Practices –

Foreign Concerns– 52.230-5 Cost Accounting Standards – Educational Institution– 52.230-6 Administration of Cost Accounting Standards– 52.230-7 Proposal Disclosure – Cost Accounting Practice

Change

CAS clause(s) may be self-deleting/self-adding







CAS Requirements

1. Must Consistently Follow Your Cost Accounting Practices!• Cost Accounting Practice– Measurement– Assignment– Allocation

• Unilateral change– The government will not pay increased costs– Desirable change - The government may pay increased costs

• Required change– e.g. Pension Protection Act harmonization

• Notification to Contracting Officer– 60 days before the change







CAS Requirements

• When requested, what is included in a General Dollar Magnitude or Detailed Cost Impact?– Must include all “affected” CAS covered contracts and

subcontracts– Impact is calculated based on the Estimate to Complete (ETC)– Separate calculations for flexibly priced and fixed priced contracts

• An increase/decrease on a flexibly priced contract is the increase/decrease cost to the government

• An increase cost on fixed priced contracts is decreased cost to the government

• An decrease cost on fixed priced contracts is increased cost to the government

– Must show impact by Executive Agency







CAS Requirements

2. Must comply with the Cost Accounting Standards!• Failure to follow one of the CAS Standards results in a CAS noncompliance (e.g. CAS

418 Noncompliance)• Notification to Contracting Officer

– Must provide a description of the change necessary to correct the noncompliance– Within 60 days of agreement, or final determination

• When requested, submission of General Dollar Magnitude or Detailed Cost Impact– Similar to the Unilateral change process with a few exceptions:

• Estimate to Complete is not used• For fixed priced contracts, the negotiated contract price is recalculated under

the compliant method to determine increase/decreased cost to the government.

• For flexibly priced contracts, the cost accumulated during the period of noncompliance is recalculated under the compliant method to determine increase/decrease cost to the government.

• Statute of Limitations (6 years)







CAS Requirements

3. Submission of Disclosure Statement!• Single award

– Segment is awarded a $50M or more CAS covered contract– Must be submitted prior to award

• Based on awards in prior cost accounting period– Entire company (i.e. all segments) received $50M or more CAS covered

contracts– Must be submitted in the next cost accounting period

• Grace period for contracts awarded in the first 90 days– Exemption

• Segments CAS covered sales are less than 30% of total segments sales, and less than $10M

• Home Office• When a Disclosure Statement is required as defined above, the Home Office

must complete a Disclosure Statement







CAS Requirements

Disclosure Statement Sections

• Part 1 General Information• Part II Direct Costs• Part III Direct vs. Indirect Costs• Part IV Indirect Costs• Part V Depreciation and Capitalization Practices • Part VI Other Costs and Credits• Part VII Deferred Compensation and Insurance Costs• Part VIII Home Office Expenses







Conclusion

• Determine if you have any contracts in excess of the TINA threshold

• Does this contract fall under any of the CAS exemptions?

• If not, is the contract fully CAS covered or modified CAS covered based on the award value?

• Does a disclosure statement need to be prepared?







About Aronson LLC

Aronson LLC provides a comprehensive platform of assurance, tax, and consulting solutions to today’s most active industry sectors and successful individuals. For more than 50 years, we have purposefully expanded our service offerings and deepened our industry specialties to better serve the needs of our clients, people, and community. From startup to exit, we help our clients maximize opportunity, minimize risk, and unlock their full potential.







About Aronson LLC

• Thinking ahead for clients for more than 50 years• 225+ professionals located in Rockville, MD• 80+ professionals dedicated to supporting government contractors • Aronson helps clients rethink the way they approach their business

through innovative, industry-specific services and advice:– Audit, Assurance and Tax– Deltek Systems and Outsourcing– Financial and Contract Compliance– GSA Schedules

• www.aronsonllc.com/blogs/fedpoint/ – News and trends and insight for today’s savvy government contractor



http://www.aronsonllc.com/blogs/fedpoint/





Awards / Accolades / Affiliations

The Gazette of Politics & Business Exceptional 53 Business Award In 2012, Aronson received the PB53 award for the third year in a row. The program acknowledges the top businesses and organizations in Maryland based on criteria that includes the company’s annual revenue, employee growth, noteworthy product or service innovations, community service efforts and more.

Accounting Today Top Firm In 2013, Aronson was once again named to Accounting Today’s list of the top 100 firms in the country. Accounting Today is a leading provider of online business news for the tax and accounting community.

Washington Business Journal Top 25 Aronson is ranked #12 on the Washington Business Journal’s Top 25 Accounting Firms in the DC Metropolitan area.

INSIDE Public Accounting Top 100 Once again, Aronson has earned a spot in the top 100 of this prestigious list, released by INSIDE Public Accounting. This is the longest running, most comprehensive and accurate independent analysis focusing on management and operations of America’s large local, regional and national firms.

Washington Business Journal Best Places to Work Aronson has been recognized five times as one of the Metro area’s “Best Places to Work.” The award recognizes a company’s achievements in creating a positive work environment that attracts and retains employees through a combination of employee satisfaction, working conditions and company culture.

Montgomery County Chamber Corporate Social Responsibility AwardIn 2010, Aronson was honored to receive the MCCC’s Corporate Social Responsibility Award based on the depth and breadth of the company’s energetic commitment to support young people, in the areas of education, housing and health.







Aisha N. Mian is a managing consultant in Aronson LLC’s Government Contract Services Group. She has more than eight years of experience in the government contracting industry, with expertise in both project control and financial compliance. Her professional skills include contract/project financial analysis and various areas of financial compliance, including preparation of incurred cost submissions; support in evaluating, preparing and advising appropriate indirect rate structures; preparation of disclosure statements; and analysis and impact of cost accounting standards (CAS). She has also worked alongside in-house DCAA auditors supporting audits for incurred cost submissions during her time in the industry. Aisha has been a guest speaker on financial and government contracting topics at the GWSCPA Government Contracting Conference and has hosted Aronson LLC webinars related to government contracting topics. She earned her bachelor’s degree in finance from George Mason University and her MBA from the Robert H. Smith School at the University of Maryland College Park.

Managing Consultant, Government Contract Services Group

240..364.2614

[email protected]

Aisha N. Mian







Nicole Mitchell joined Aronson LLC in 1998 and serves as a Partner in Aronson’s Government Contract Services Group. She received a Bachelor of Science in Accounting from Frostburg State University and a Masters in Business Administration from Mount Saint Mary’s College. Nicole specializes in accounting and financial issues impacting government contractors. She has a broad-based background in generally accepted accounting principles and cost principles related to government contractors including the Federal Acquisition Regulations (FAR) and Cost Accounting Standards (CAS). Nicole provides consulting and accounting services to government contractors in the areas of financial regulatory compliance, contract pricing, and complex cost accounting structures. She has in-depth knowledge of the key financial business systems and compliance risk unique to government contractors. Nicole has been a guest speaker on various financial and government contracting topics for such organizations as the AICPA, MACPA, Deltek Insight Conference, and the Howard County Chamber of Commerce. She co-authored a Thompson RIA reference manual for controllers “Doing Business with the Federal Government” and is a regular contributor to Aronson’s Fed Point blog.

Partner, Government Contract Services Group

301.222.8231

[email protected]

Nicole M. Mitchell, CPA







301.222.8231

Contact Nicole Mitchell / Aronson LLC

[email protected]

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240.364.2614

Contact Aisha Mian / Aronson LLC

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https://www.linkedin.com/in/aishamian




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