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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) for Compensated Personal Absence (CAS 408) and Depreciation of Tangible Capital Assets (CAS 409). Back in March of 2019, the CASB published a Discussion Paper to collect initial input on the need for CAS 408 and 409 based on the changes that had been made to GAAP since the 1970’s.
What is the Cost Accounting Standards Board (CASB) Planning?
Based on the CASB research and public comments, the CASB has determined that CAS 408 and 409 are no longer necessary – GAAP currently has substantially the same requirements related to accounting for the cost of personal absences and depreciation of tangible capital assets as are in the CAS standards. The CASB plans to rely on other parts of CAS and move a few requirements:
- CAS 418 will be used to address the allocation of the cost of personal absences. It is likely most contractors will continue to use their current fringe rate allocation process.
- CAS 409-50(h) “requirement that no depreciation costs can be recognized, which would significantly reduce book value of a tangible capital asset below its residual value.” The CASB will rely on FAR 31.205-11(a) making any amount of depreciation below the residual value unallowable.
- CAS 409-50(e)(5) “The contracting parties may agree on the estimated service life of individual tangible capital assets where the unique purpose for which the equipment was acquired or other special circumstances warrant a shorter estimated service life than the life determined in accordance with the other provisions of this 9904.409-50(e) and where the shorter life can be reasonably predicted.” CASB is planning on moving this requirement to CAS 406.
- CAS 409-50(j)(1) “Gains and losses on disposition of tangible capital assets shall be considered as adjustments of depreciation costs previously recognized and shall be assigned to the cost accounting period in which disposition occurs except as provided in subparagraphs (j)(2) and (3) of this subsection.” While FAR 31.205-16(d) “limits the gain recognized for government contracting to the difference between the acquisition cost and the undepreciated balance. The Board believes …that as this requirement relates to measurement of costs, it should be retained in CAS.” CASB is planning on moving this requirement to CAS 406.
- CAS 409-50(j)(4) “requires that gains and losses on disposition of tangible capital assets transferred in other than an arm's-length transaction and subsequently disposed of within 12 months from the date of the transfer shall be assigned to the transferor. GAAP has no comparable requirement.” CASB is planning on moving this requirement to a new CAS 418-50(h).
This is a long overdue step in the right direction. Even what many of us would consider immaterial differences between CAS and GAAP have led to CAS non-compliances from our friends at DCAA. These minor, mostly timing differences in the assignment of cost to a specific accounting period have driven up cost in the Government compliance functions within many contractors. We love it when we hear DCAA auditors say a contractor should only have one set of accounting records – yet the Government regulations require a set of books base on GAAP, CAS, and tax requirements.
Redstone GCI Plans to Submit Comments
Redstone GCI plans to submit comments related to the need for CASB to address the disclosure requirements related to relying on GAAP. Currently the CASB Disclosure Statement (DS) requires extensive disclosure related to deprecation in DS Part V and personal absences in DS Part VI. We believe these sections of the DS can be removed.
Public Comments are Due August 26, 2024
We recommend all interested contractors submit public comments on the beneficial impact of the removal of CAS 408 and 409. Your written comments should be emailed to OMBCASB@omb.eop.gov with your name, title, organization, and reference to CASB Case 2021–02.
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