White Paper on Conforming CAS to GAAP

The Cost Accounting Standards Board (CASB) released a Staff Discussion Paper (SDP) today on conforming CAS to GAAP (Generally Accepted Accounting Standards). The full text of the SDP is available here. Comments are welcome and must be received by May 13, 2019 (60 days from now). This SDP is the first step in the rule-making process. Next would be the advanced notice of proposed rule-making, a proposed rule, and a final rule.

The 2017 NDAA required the CAS Board to review CAS and conform them, where practicable to GAAP in order to minimize the burden on contractors while at the same time, protecting the interests of the Federal Government.

The SDP identifies the differences and similarities in the purpose and application of overlapping, but distinct, accounting standards. CAS is designed to provide protections to the Federal Government by achieving  uniformity and consistency in the cost accounting practices used by contractors for measurement, assignment, and allocation of costs to Government contracts. GAAP on the other hand, is a set of financial accounting standards established by the FASB (Financial Accounting Standards Board) for recording and reporting financial information. Financial statements produced using GAAP focus on the financial performance of segments of the company and the entity as a whole. The focus of CAS is at the contract level while GAAP is focused on a higher level - product line, segment, or entity level.

In developing the SDP, the CAS board followed these guiding principles:

1. Reduce CAS requirements where practicable to minimize the burden on contractors while protecting the interests of the Government
2. Consider whether the proposed action would result in a net burden reduction (would the benefits of eliminating a requirement in one cost accounting standard be outweighted by the burdens made by changes required in other CAS standards
3. Consider whether other CAS requirements may protect the Government's interests when evaluating the potential risk of any gaps created by relying on GAAP instead of CAS.

This initial SDP focuses on only two CAS standards; CAS 408 (compensated personal absences) and CAS 409 (depreciation of capital tangible assets). Presumably analysis of the remaining standards will come later.

You can read the entire SDP here.