Cost Accounting Standards
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Cost Accounting Standards (popularly known as CAS) are a set of 19 standards and rules promulgated by the United States Government for use in determining costs on negotiated procurements. CAS differs from the Federal Acquisition Regulation (FAR) in that FAR applies to substantially all contractors, whereas CAS applies primarily to the larger ones.
In 1970, Congress established the original Cost Accounting Standards Board (CASB) to 1) promulgate cost accounting standards designed to achieve uniformity and consistency in the cost accounting principles followed by defense contractors and subcontractors in excess of $100,000 and 2) establish regulations to require defense contractors and subcontractors, as a condition of contracting, to disclose in writing their cost accounting practices, to follow the disclosed practices consistently and to comply with promulgated cost accounting standards. After adopting 19 standards, the original CASB was dissolved on September 30, 1980; the standards, though, remained active.
However, CASB was revived in 1988 within the Office of Federal Procurement Policy (OFPP). The current CASB consists of five members: the OFPP Administrator (who serves as Chairman) and one member from the United States Department of Defense (this position is held by the Director of the Defense Contract Audit Agency), the General Services Administration, industry, and the private sector.
The original CASB adopted 19 standards, numbered 401 through 420 (419 was never assigned). The new CASB readopted the original 19 standards with only minor modifications, and has yet to adopt any new standards.
|401||Consistency in Estimating, Accumulating and Reporting Cos|
|402||Consistency in Allocating Costs Incurred for the Same Purpose|
|403||Allocation of Home Office Expenses to Segments|
|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|
|411||Accounting for Acquisition Costs of Material|
|412||Composition and Measurement of Pension Costs|
|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 Cost|
|417||Cost of Money as an Element of the Cost of Capital Assets Under Construction|
|418||Allocation of Direct and Indirect Costs|
|420||Accounting for Independent Research and Development Costs and Bid and Proposal Costs (IR&D and B&P)|
CAS applies to contracts, not contractors, though Federal Acquisition Regulation clauses. A company may have contracts that are subject to "full" CAS coverage (be required to follow all 19 standards), "modified" CAS coverage (required to follow only Standards 401, 402, 405, and 406), simultaneously have contracts that are subject to either modified or full coverage, or be exempt from coverage. However, a company under "full" coverage is not subject to a standard where it does not apply (e.g., a company which does not use standard costing does not have to comply with CAS 407).
"Modified" coverage applies to contracts when a company receives a single CAS-covered award of US$7.5 million or more; this is known as the "Trigger" contract; modified coverage applies to all contracts that are not exempt from CAS until the company meets the criteria for "Full" coverage.
"Full" coverage applies when a company receives either one CAS-covered contract of US$50 million or more in the current accounting period, or, in the preceding cost accounting period, multiple CAS-covered contracts cumulatively totaling US$50 million. In addition to complying with all 19 standards (where applicable), the company must also file a CAS Disclosure Statement, which spells out the company's accounting practices (such as if certain costs are treated as direct contract charges or as part of overhead expense). There are two versions of the CAS Disclosure Statement: DS-1 applies to commercial companies while DS-2 applies to educational institutions.
In some instances, a contract may be exempt from CAS standards:
- Contracts awarded to small businesses are exempt from CAS, regardless of contract size
- Any contract less than US$7.5 million is exempt, provided the company has not been awarded a contract greater than US$7.5 million, and also any contract less than US$750,000 is always exempt
- Contracts for commercial items
- Contracts awarded under sealed bid procedures, or where "adequate price competition" was available (the latter meaning where at least two companies had the ability to bid and perform on a contract, even if only one bid was later received)
- Contracts where the price is set by law or regulation
- Contracts awarded to foreign governments
- Contracts awarded to foreign concerns (only the disclosure statement and CAS 401 and 402 apply in this case) (See CFR 9903.201-1(b))
Previously, contracts where performance would have been performed entirely outside the United States (including territories and possessions) were also exempt, but this exemption was removed for new contracts effective October 11, 2011.
Furthermore, in some instances even where a company is subject to a standard, different rules may apply within the standard itself as to what a company is required to do. As an example, under CAS 403, if Company A's "residual expenses" (defined as those expenses incurred by the home office – usually the corporate office – which cannot be identified to a specific contract, group of contracts, or company segment) exceed a specified percentage of revenue, Company A must follow a dictated "three-factor" formula to allocate such expenses, but if Company B's residual expenses do not exceed the percentage (even if, in dollar terms, they are greater), Company B may follow the formula but is not required to do so.
- Rayburn, Frank R. "Cost Accounting Standards Board )1970-1980-; 1988-)." In History of Accounting: An International Encyclopedia, edited by Michael Chatfield and Richard Vangermeersch. New York: Galrnad publishing, 1996. Pp. 178-180.