What is a Cost Accounting Practice?

One frequent argument between contractors and contracting officers and/or contract auditors is whether "something" a contractor want to do accounting-wise, represents a change in a cost accounting practice. It is an important question because if the contractor is CAS (Cost Accounting Standards) covered, a change in a cost accounting practice will require contracting officer approval (pre-approval if everyone is doing their jobs correctly) and the contractor may owe the Government some money if the cost accounting change results in increased cost to the Government.

Before there can be a change to a cost accounting practice, there has to be a cost accounting practice. And here's where disputes arise. To the Government, everything having to do with accounting, estimating, accumulating, and reporting costs is an accounting practice. To the contractor, not so much. A lot of disputes can be avoided however if the parties read the regulations. Fortunately, the Cost Accounting Standards Rules and Regulations provide a definition of "cost accounting practice".

According to the Cost Accounting Standards Board (CASB), a "cost accounting practice" is any disclosed or established accounting method or technique which is used for allocation of costs to cost objectives, assignment of cost to cost accounting periods, or measurement of costs (see 48 CFR 9903.302-1). So, let's parse that definition.  Note the three-pronged test. The accounting method or technique must be

• used for allocation of cost to cost objectives.
• used for assignment of cost to cost accounting period
• used for measurement of cost

Measurement of cost in this context encompasses accounting methods and techniques used in defining the components of costs, determining the basis for cost measurement, and establishing criteria for use of alternative cost measurement techniques. Examples include the use of either historical cost, market value or present value, the use of standard cost or actual cost, the designation of those items of cost which must be included or excluded from tangible capital assets or pension costs, etc.

Therefore, if a disclosed or established accounting method or technique is not used for allocation of costs, for assignment of costs or measurement of costs, it is not a cost accounting practice. If it is not a cost accounting practice, a change in the method or technique then, is not a change to a cost accounting practice.