In the June 27, 2024 Federal Register, the Cost Accounting Standards Board (CASB) put out a notification that it was looking for input on its efforts to conform Cost Accounting Standards (CAS) to Generally Accepted Accounting Principles (GAAP) related to operating revenue and lease accounting. Back on March 13, 2019, the CASB published a Discussion Paper to collect initial input on the conformance of CAS to GAAP. Then on November 5, 2020, the CASB published a notice of proposed rulemaking specifically addressing operating revenue and lease accounting.
What is the Cost Accounting Standards Board (CASB) Planning?
Based on the CASB research and public comments, the CASB believes that the GAAP definition of “revenue” found at Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) 606-10-20 is essentially equivalent to the CAS definition of “operating revenue” found at CAS 403-30(a)(3). The only real concern the CASB had related to the special treatment of revenue related to a contract to operate a government-owned facility. The public comments pointed out that the CASB’s concern was already addressed in FASB ASC 606-10-55-38 which limits the revenue recognized when a business is an agent for another party. Therefore, the CASB is proposing to delete the CAS 403 definition and rely on the GAAP definition.
When it comes to the treatment of leases, even with the input from public comments, the definition of tangible and intangible capital assets that can be used in the calculation of CAS 414 and 417 cost of money simply states: “It includes assets classified as finance leases for financial accounting purposes and excludes those right-of-use assets that were formerly known as operating leases.” Here is the way I see it. If you must impute and recognize the interest included in the lease payment, then the assets value can be included in the net book value for the cost of money calculation. If the lease payment is recognized as a single amount, then the assets value cannot be included in the net book value for the cost of money calculation.
For contractors applying GAAP, this should not be a concern. However, for contractors that must apply International Financial Reporting Standards (IFRS) which requires the interest for right-of-use assets be recognized, I am concerned that our friendly auditors will read it literally that right-of-use asset cannot be used in the cost of money calculation.
Redstone GCI Plans to Submit Comments
Redstone GCI plans to submit comments supporting the CASB proposed change related to revenue, recommending the definition of tangible and intangible capital assets be changed to address the recognition of interest rather than a category of assets (i.e., right-of-use), and support that any necessary accounting practice changes be considered a required change under 9903.201-4(a).
Public Comments are Due August 26, 2024
We recommend all interested contractors submit public comments on the beneficial impact of conforming CAS to GAAP and that rather than call out right-of-use assets, the recognition of interest be used in the definition of tangible and intangible capital assets.
Your written comments should be emailed to OMBCASB@omb.eop.gov with your name, title, organization, and reference to CASB Case 2021–01.
Redstone GCI assists contractors throughout the U.S. and internationally with understanding the Government’s requirements and maintaining compliance. We would be happy to be part of your team.
John is a Director with Redstone Government Consulting, Inc. providing government contract consulting services to our clients primarily related to the DFARS business systems, CAS Disclosure Statements, and DCAA/DCMA compliance preparation, advisory, and defense. Prior to joining Redstone Government Consulting, John served in a number of capacities with DCAA/DCMA for more than 30 years. Upon his retirement, he was based in Texas as an SES-level Corporate Audit Director for DCAA, managing a staff of 300 auditors at one of the largest DOD programs. Professional Experience John began his career in the late 80s working in the Clearwater, FL audit office and over the next three decades he progressed through a number of positions within both DCAA and DCMA with career highlights as DCAA Program Manager at Ft. Belvoir, Chief of Technical Programs Division, Deputy Assistant Director-Policy, Director of the DCMA Cost and Pricing Center, the SES-level Lockheed Martin Corporate Audit Director, and Director of Integrity and Quality Assurance. John’s three decades of experience in performing and leading DCAA auditors and DCMA reviewers provides a wealth of expertise to our clients. John’s role, not only in the performance of audits, but also in the development of audit policy affords him unique insights into the defense of audit findings and the linkage of audit program steps to the underlying regulatory framework. He is an expert in FAR, DFARS, and other agency acquisition regulation, as well as a subject matter expert in the Cost Accounting Standards having reviewed and provided audit feedback on many of the largest and most complex cost accounting practices during his tenure with the DCAA. John’s tenure with DCAA and DCMA came at a critical time during each agency’s history where a number of changes were occurring such as the response to the ICS backlog, development of audit approaches to the DFARS Business Systems and implementation of new audit initiatives as a result of Congressional oversight through the NDAA process. John’s leadership at the DCMA Cost & Pricing center saw oversight of all major DOD pricing actions, leadership of should cost review teams, the Commercial Pricing group and many other areas of strategic value to our clients. His involvement in these and other Agency initiatives is of great value to our clients due to his in depth understanding of DCAA and DCMA’s internal policy directives. Education John holds a Master of Business Administration and a B.A. in Accounting from the University of South Florida. Certifications Certified Information Systems Auditor State of Alabama Certified Public Accountant