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Chapter 8
Cost Accounting Standards
Table of Contents
8-000 - Cost Accounting Standards
8-001 Scope of Chapter
8-100 Section 1 – Introduction to Cost Accounting Standards
8-101 Introduction to Cost Accounting Standards
8-102 Background of Cost Accounting Standards Board
8-102.1 Establishment of Cost Accounting Standards Board (CASB) 8-102.2 CAS Working Group 8-102.3 Current Status of CAS - Recent Substantive CASB Promulgations
8-103 CAS Coverage Requirements and CAS Exemptions
8-103.1 Educational Institutions - CAS 8-103.2 CAS Exemptions 8-103.3 Types of Coverage 8-103.4 Effect of Contract Modifications 8-103.5 Effect of Basic Ordering Agreements 8-103.6 Effect of Letter Contracts 8-103.7 CAS Flowdown Clause - FAR 52.230- 8-103.8 Submission of Disclosure Statement 8-103.9 Additional Exemptions on a Particular Standard 8-103.10 CAS Waivers
8-104 CAS Audit Responsibility
8-104.1 Basic Functions 8-104.2 Auditor's Function on Subcontracts Subject to CAS8-104.3 Contract Audit Coordinator (CAC)
8-104.3 Contract Audit Coordinator (CAC)
Figure 8-1-1 -- CAS Coverage and Disclosure Statement Determination
8-200 Section 2 – Disclosure Statement Adequacy
8-201 Introduction to Adequacy
8-300 Section 3 – Audits of Compliance with Cost Accounting
Standards Board (CASB) Rules, Regulations, and Standards,
and with FAR
8-301 Introduction
8-302 Noncompliance with CAS
8-302.1 Requirements 8-302.2 Types of Noncompliance 8-302.3 Compliance Considerations 8-302.4 Discussions with the CFAO and the Contractor 8-302.5 Coordination for Consistent Treatment 8-302.6 CAS Coordination in CAC/CHOA/GAC Complexes 8-302.7 Reporting CAS Noncompliance 8-302.8 Reporting FAR Noncompliance
8-303 Audit of Disclosure Statement and/or Established Practices to Ascertain Compliance with CAS and FAR
8-303.1 Requirements 8-303.2 Initial Audits of Compliance 8-303.3 Changes to Disclosure Statements and/or Established Practices
8-304 Audit of Estimated, Accumulated, and Reported Costs to Ascertain Compliance with CAS and FAR
8-304.1 Requirements 8-304.2 Compliance Audits 8-304.3 Reporting of Compliance Audit Results
8-400 Section 4 - Cost Accounting Standards
8-401 Cost Accounting Standard 401 - Consistency in Estimating, Accumulating and Reporting Costs
8-408.2 Illustrations
8-409 Cost Accounting Standard 409 - Depreciation of Tangible Capital Assets
8-409.1 General 8-409.2 Illustrations
8-410 Cost Accounting Standard 410 - Allocation of Business Unit General and Administrative Expenses to Final Cost Objectives
8-410.1 General 8-410.2 Illustrations
8-411 Cost Accounting Standard 411 - Accounting for Acquisition Costs of Material
8-411.1 General 8-411.2 Illustration
8-412 Cost Accounting Standard 412 - Composition and Measurement of Pension Costs
8-412.1 General 8-412.2 Assignment of Pension Cost 8-412.3 Full Funding Limitation 8-412.4 Nonqualified Plans 8-412.5 Illustrations
8-413 Cost Accounting Standard 413 - Adjustment and Allocation of Pension Cost
8-413.1 General 8-413.2 Segment Accounting 8-413.3 CAS 413.50(c)(12) Adjustment For Segment Closing, Plan Termination or Benefit Curtailment 8-413.4 Illustrations
8-414 Cost Accounting Standard 414 - Cost of Money as an Element of the Cost of Facilities Capital
8-414.1 General 8-414.2 Interest Rates – Cost of Facilities Capital 8-414.3 Evaluating the Contractor’s Computations
8-415 Cost Accounting Standard 415 - Accounting for the Cost of Deferred Compensation
8-415.1 General 8-415.2 Illustrations
8-416 Cost Accounting Standard 416 - Accounting for Insurance Cost
8-416.1 General 8-416.2 Guidance 8-416.3 Illustrations
8-417 Cost Accounting Standard 417 - Cost of Money as an Element of the Cost of Capital Assets Under Construction
8-417.1 General 8-417.2 Guidance 8-417.3 Illustrations
8-418 Cost Accounting Standard 418 - Allocation of Direct and Indirect Costs
8-418.1 General 8-418.2 Guidance 8-418.3 Illustrations
8-419 Reserved
8-420 Cost Accounting Standard 420 - Accounting for Independent Research and Development Costs and Bid and Proposal Costs (IR&D and B&P)
8-420.1 General 8-420.2 Guidance 8-420.3 Illustrations
8-500 Section 5 - Cost Impact Proposals
8-501 Introduction
8-502 General - Cost Impact Proposals
8-502.1 CAS Clause Requiring Price Adjustments 8-502.2 FAR Requirement for Submission of Cost Impact Proposal 8-502.3 Accounting Practice Changes Related to External Restructuring
cost accounting practices, to follow the disclosed practices consistently and to comply with duly promulgated cost accounting standards.
b. The original CASB promulgated 19 standards and associated rules, regulations and interpretations. It went out of existence on September 30, 1980.
c. On November 17, 1988, President Reagan signed Public Law 100-
which reestablished the CASB within the Office of Federal Procurement Policy (OFPP), which is under the Office of Management and Budget (OMB). The CASB consists of five members: the Administrator of OFPP who is the Chairman and one member each from DoD, GSA, industry and the private sector (generally expected to be from the accounting profession).
**8-102.2 CAS Working Group **** a. To interpret the CASB rules and regulations for implementing in DoD procurement practices, DoD established in 1976 a CAS Steering Committee and Working Group. During its existence, the CAS Working Group issued a number of Interim Guidance Papers on a variety of subjects, most of which are still effective and have been incorporated into this chapter. The Interim Guidance Papers were approved by the Office of the Secretary of Defense (R&E) and given wide distribution.
b. The papers issued by the CAS Working Group that are still in effect are listed below. The full text of the papers can be found as a link in the DCAA Intranet under Headquarters Organization Information, Policy & Plans, Accounting and Cost Principles (PAC):
Table 8-1-
No. Subject
76-2 Administration of Cost Accounting Standards
76-3 Policy for Application of CAS to Subcontracts
76-4 Determining Increased Costs to the Government for CAS Covered FFP Contracts
76-5 Treatment of Implementation Costs Related to Changes in Cost Accounting Practices
76-6 Application of CAS Clause to Changes in Contractor’s Established Practices when a Disclosure Statement has been Submitted
76-7 Significance of "Effective" and "Applicability" Dates Included in CAS
76-9 Measurement of Cost Impact on FFP Contracts
77-10 Retroactive Implementation of CAS When Timely Compliance is Not Feasible
77-13 Applicability of CAS 405 to Costs Determined to be Unallowable on the Basis of Allocability
77-15 Influence of CAS Regulations on Contract Terminations
77-16 Applicability of CAS to Letter Contracts
77-17 Identification of CAS Contract Universe at a Contractor’s Plant
77-18 Implementation of CAS 414 - Cost of Money as an Element of the Cost of Facilities Capital; and DPC 76-
77-19 Administration of Leased Facilities Under CAS 414
77-20 Policy for Withdrawing Adequacy Determination of Disclosure Statement
78-21 Implementation of CAS 410, Allocation of Business Unit G&A Expenses to Final Cost Objectives
78-22 CAS 409 and the Development of Asset Service Lives
79-23 Administration of Equitable Adjustments for Accounting Changes not Required by New Cost Accounting Standards
79-24 Allocation of Business Unit G&A Expense to Facilities Contracts
81-25 Change in Cost Accounting Practice for State Income and Franchise Taxes as a Result of Change in Method of Reporting Income from Long Term Contracts
**8-102.3 Current Status of CAS - Recent Substantive CASB Promulgations **** a. On June 6, 1997, the CASB issued a final rule amending 9903.201-1(b)(6) to exempt from the requirements of CAS, firm-fixed-price and fixed-price with economic
- Clarifies the aggregate value of contract adjustments for unilateral changes and estimating noncompliances, and
- Includes an exemption from the cost impact process for cost accounting practice changes directly associated with external restructuring activities.
8-103 CAS Coverage Requirements and CAS Exemptions **
The following subsections contain a summary of CAS coverage requirements (see Figure 8-1-1).
**8-103.1 Educational Institutions – CAS **** Contracts and subcontracts with educational institutions are subject to special CAS coverage (see CAM chapter 13). Contracts and subcontracts performed by federally funded research and development centers operated by educational institutions are subject to CAS coverage for commercial companies.
**8-103.2 CAS Exemptions **** The following categories of contracts and subcontracts are exempt from all CAS requirements (48 CFR 9903.201-1):
a. Sealed bid contracts.
b. Negotiated contracts and subcontracts (including interdivisional work orders) less than the Truth in Negotiations Act (TINA) threshold.
c. Contracts and subcontracts with small businesses. FAR Subpart 19. addresses determination of status as a small business. A small business (offeror) is one which represents, through a written self-certification, that it is a small business concern in connection with a specific solicitation and has not been determined by the Small Business Administration (SBA) to be other than a small business. The contracting officer accepts an offeror's representation unless that representation is challenged or questioned. If the status is challenged, the SBA will evaluate the status of the concern and make a determination. (Specific standards appear in Part 121 of Title 13 of the Code of Federal Regulations.)
d. Contracts and subcontracts with foreign governments or their agents or instrumentalities or, insofar as the requirements of CAS other than CAS 401 and CAS 402 are concerned, any contract or subcontract awarded to a foreign concern.
e. Contracts and subcontracts in which the price is set by law or regulation.
f. Firm-fixed-price contracts and subcontracts for the acquisition of commercial items.
g. Contracts or subcontracts 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. “Currently performing” is defined in 48 CFR 9903.301, Definitions. A contract is being currently performed if the contractor has not yet received notification of final acceptance of all supplies, services, and data deliverable under the contract (including options). “Currently performing” is intended to reflect the period of time when work is being performed on contractual effort. The period ends when the Government notifies the contractor of final acceptance of all items under the contract. If a contractor is currently performing a CAS-covered contract of $7.5 million or greater, CAS coverage is triggered and new awards are subject to CAS (unless they meet another exemption under 9903.201-1(b)).
h. Subcontracts under the NATO PHM Ship program to be performed outside the United States by a foreign concern.
i. Firm-fixed-price contracts and subcontracts awarded on the basis of adequate price competition without submission of certified cost or pricing data.
j. In cases where the prime contract is exempt from CAS under any of the exemptions at 9903.201-1 any subcontract under that prime is always exempt from CAS.
**8-103.3 Types of Coverage **** a. Full coverage requires business units (as defined in CAS 410-30(a)(2)) comply with all of the CAS in effect on the contract award date and with any CAS that become applicable because of new standards (CAS clause at FAR 52.230-2). Full coverage applies to contractor business units that:
(1) Received a single CAS-covered contract award, including option amounts, of $50 million or more, or
(2) Received $50 million or more in CAS-covered contract awards during the immediately preceding cost accounting period.
The $50 million threshold became effective April 2, 2000. The previous $ million threshold was effective from November 4, 1993 through April 1, 2000. Prior to November 4, 1993 the threshold was $10 million.
b. Modified CAS coverage (CAS clause at FAR 52.230-3) requires only that the contractor comply with CAS 401, 402, 405, and 406. Contracts with modified CAS coverage awarded prior to November 4, 1993 are subject to CAS 401 and 402 only. Modified CAS coverage applies to contractor business units that received less than $ million in net CAS-covered awards in the immediately preceding cost accounting period.
c. When any one contract is awarded with modified CAS coverage, all CAS- covered contracts awarded to that business unit during that cost accounting period are also subject to modified coverage, except that when a business unit receives a single CAS-covered contract award of $50 million or more, that contract is subject to full
**8-103.7 CAS Flowdown Clause - FAR 52.230-2 **** The CAS clauses at FAR 52.230-2(d) and FAR 52.230-3(d) (for full and modified coverage, respectively) require a contractor to include the substance of the CAS clause in all negotiated subcontracts (at any tier) into which the contractor enters. This is commonly referred to as the "CAS flow down clause”. As discussed in 8-103.3e however, if a subcontract meets one of the CAS exemptions at 48 CFR 9903.201-1 (see 8-103.2), the subcontract will not be subject to CAS. For example, a CAS-covered prime contractor could not place the requirement for CAS compliance on a subcontract with a small business because 9903.201-1(b)(3) specifically exempts contracts and subcontracts with small businesses from CAS requirements.
**8-103.8 Submission of Disclosure Statement **** The requirements for submission of a Disclosure Statement (9903.202-1(b)) are:
a. Any business unit (as defined in CAS 410-30(a)(2)) that is selected to receive a CAS-covered contract or subcontract of $50 million or more, including option amounts, shall submit a Disclosure Statement before award.
b. Any company which, together with its segments (see CAS 410-30(a)(7)), received net CAS-covered awards totaling more than $50 million in its most recent cost accounting period shall submit a Disclosure Statement. When a Disclosure Statement is required under these criteria, it must be submitted before award of the first CAS- covered contract in the immediately following cost accounting period. However, if the first covered award is made within 90 days of the start of the cost accounting period, the contractor is not required to file until the end of the 90 days.
c. When required, a separate Disclosure Statement must be submitted for each segment having more than the Truth in Negotiations Act (TINA) threshold of costs included in the total price of any CAS-covered contract or subcontract, unless:
(1) The contract or subcontract is exempted by 48 CFR 9903.201-1, or
(2) In the most recently completed accounting period, the segment's CAS- covered awards are less than 30 percent of total segment sales for the period and less than $10 million.
d. Any home office (as defined in CAS 403-30(a)(2)) that allocates costs to one or more disclosing segments performing CAS-covered contracts must submit a part VIII of the Disclosure Statement.
8-103.9 Additional Exemptions on a Particular Standard ** Subsection 62 of each cost accounting standard will provide for any additional exemptions associated with a particular standard.
**8-103.10 CAS Waivers **** a. The CAS statute (Public Law 100-679) authorizes the CAS Board to waive
CAS requirements on individual contracts and subcontracts. CAS 9903.201- addresses CAS waivers.
b. Effective April 2, 2000, the CAS Board granted authority to waive CAS to heads of executive agencies. Implementing guidance is in FAR 30.201-5 and DFARS 230.201-5. FAR 2.101 defines “executive agency” as executive, military, and independent departments. Delegation of waiver authority may not be made lower than the senior contract policymaking level of the agency.
c. Heads of executive agencies may waive CAS under the following two circumstances:
- The contract or subcontract is less than $15 million, and the segment performing the work is primarily engaged in the sale of commercial items and has no contracts or subcontracts subject to CAS, or
- “Exceptional circumstances” exist whereby a waiver of CAS is necessary to meet the needs of the agency. Exceptional circumstances are deemed to exist only when the benefits to be derived from waiving CAS outweigh the risk associated with the waiver. A waiver for exceptional circumstances must be in writing and include a statement of the specific circumstances that justify granting the waiver. The Defense Procurement and Acquisition Policy on January 31, 2003 issued guidance, which provides that all three of the following criteria must be met for a waiver of CAS to be considered under “exceptional circumstances” for DOD contracts.
(1) The property or services cannot reasonably be obtained under the contract, subcontract, or modification, as the case may be, without the grant of the waiver,
(2) The price can be determined to be fair and reasonable without the application of the Cost Accounting Standards, and
(3) There are demonstrated benefits to granting the waiver.
8-104 CAS Audit Responsibility **
**8-104.1 Basic Functions **** FAR 30.202-6, 30.202-7, and 30.601 outline the basic functions of the contract auditor in the implementation of the standards. They provide that the contract auditor shall be responsible for making recommendations to the cognizant Federal agency official (CFAO). The CFAO is the contracting officer assigned by the cognizant Federal agency to administer CAS. Within DoD, the CFAO is the cognizant ACO. The auditor’s recommendations to the CFAO include whether:
- a contractor's Disclosure Statement, submitted as a condition of
determination of adequacy is not required. Instead, the CFAO will advise the auditor to perform postaward audits of compliance.
d. In accordance with 48 CFR 9903.202-8(c)(2), subcontractors not subject to Disclosure Statement requirements may claim that other CAS-related audits by prime contractors would jeopardize their proprietary data or competitive position. In such cases, the subcontractor may request the Government to perform the audits.
**8-104.3 Contract Audit Coordinator (CAC) **** The CAC will be responsible for assuring, for all organizational units of the assigned company, that consistent and compatible audit conclusions are reached by all FAOs involved. Specific responsibilities for all auditors in the coordination process are in subsequent sections of this chapter. If a CAC has not been assigned to a multidivisional contractor, the regional director cognizant of the corporate home office will designate a Corporate Home Office Auditor (CHOA) or Group Audit Coordinator (GAC), as applicable (see also 8-204 for audit coordination within multiorganizational companies).
Figure 8-1-1 - CAS Coverage and Disclosure Statement Determination
unacceptable practice to be in actual noncompliance.
c. To facilitate the implementation process, each promulgated standard contains subparagraph .63 that prescribes the effective date and an applicability date. The CASB defers the applicability date beyond the effective date in order to provide contractors adequate time to prepare for compliance and make any required accounting changes. Under the regulation, a contractor becomes subject to a new standard only after receiving the first CAS-covered contract following the effective date.
(1) The distinction between the effective and applicability dates is important. The effective date designates when the pricing of future CAS-covered contracts must reflect the new standard. It also identifies those CAS-covered contracts eligible for an equitable adjustment, since only contracts in existence on the effective date can be equitably adjusted to reflect the prospective application of a new or revised standard.
(2) The applicability date marks the beginning of the period when the contractor's accounting and reporting systems must comply with a new or revised standard. Proposals for contracts to be awarded after the effective date of a standard should be evaluated carefully for compliance with the new or revised standard. The proposal need only reflect compliance with the standard from the applicability date forward. Therefore, it is important that the auditor determine the applicability date of the particular Standard (including any revisions) under audit. Any change resulting from early implementation by the contractor is to be administered as a unilateral change. It will result in an equitable adjustment under FAR 52.230-2(a)(4)(iii) for the period prior to the applicability if the CFAO determines that the unilateral change is a desirable change.
(3) In unusual situations, the short lead-time between the effective and applicability dates may create a difficult situation for the contractor. In such a case, the contractor may request the change be retroactive. The CFAO shall determine whether the contractor’s request is approved or not; however, the CFAO cannot approve a date for the retroactive change before the beginning of the year in which the request was made. Where a contractor can demonstrate to the CFAO that it would be virtually impossible to comply with the effective or applicability dates of a standard, contracts can be negotiated after the effective date of the standard based on the accounting system used before the standard became effective.
(4) Contract terms should include provisions for price adjustments, retroactive to the applicability date, for significant cost impact resulting from the change in accounting practice to comply with the standard. In addition, the CFAO should establish a specific date for the contractor to complete the changes to its estimating, accounting, and reporting systems and Disclosure Statement to comply with the standard. When this procedure is followed, noncompliances will not be reported. Equitable adjustments computed as of the applicability date will be submitted as provided in FAR 30.604(h)(4). (See CAS Working Group Papers 76-7 and 77-10.)
d. Questions have been raised regarding the CAS compliance of termination claims since:
(1) costs in termination claims may be arranged differently than the cost presentations in the original estimates, and
(2) termination claims often include as direct costs such items as settlement costs or unexpired leases that would have been charged indirect if the contract had been completed. Termination costing procedures, as detailed in FAR 31.205-42, are still effective. DoD does not view these procedures as violating either CAS 401 or 402, since terminating a contract creates a situation that is totally unlike completing a contract. Therefore, these costs would not be considered costs incurred for the same purpose in like circumstances. Termination contracting officers should assure themselves that within the context of termination situations, consistency is honored to the extent that the circumstances are similar. To that end, it would be advisable for a contractor to document its termination accounting procedures as part of its disclosed practices. Indirect cost rates used in termination claims must represent full accounting periods as required by CAS 406. (See CAS Working Group Paper 77-15.)
**8-302 Noncompliance with CAS ****
**8-302.1 Requirements **** a. In accordance with FAR 30.605(b) when the CFAO determines a disclosed or an established practice is not in compliance, the CFAO shall notify the contractor and provide a copy of the notice to the auditor. The CFAO also makes a determination of materiality.
(1) If the CFAO determines that the noncompliance is immaterial, the contractor must correct the noncompliance and the Government reserves the right to make contract adjustments if the contractor fails to correct the noncompliance and it becomes material.
(2) If the CFAO determines that the noncompliance is material, the contractor is required to submit a description of any accounting practice change needed to bring the practices into compliance, which the auditor will review for adequacy and compliance. If the proposed change is both adequate and compliant, the contractor must submit a general dollar magnitude (GDM) proposal. In addition, adjustment of the prime contract price or cost allowance in accordance with FAR 30.605 may be required. (See 8-500)
b. As in FAR 30.202-6 and 30.202-7, the contract auditor shall be responsible for conducting audits as necessary to advise the CFAO as to whether the contractor's disclosed or established practices comply with CAS and FAR Part 31. Because the audit responsibility is a continuous requirement, instances of noncompliance may be detected and reported at various stages of the procurement action.
**8-302.2 Types of Noncompliance **** a. Eight types of noncompliance can be identified based on CASB rules, regulations, and standards and FAR Part 31:
