Monday, January 10, 2011

Cost Accounting Standards

Tomorrow we will begin an irregular series of posts to cover the essential requirements of the nineteen CAS Standards. In the next couple of months, we should be able to cover them all. The Cost Accounting Standards are promulgations designed to promote fair and consistent cost accounting practices among Government contractors. While many contractors are exempt from CAS, many of the CAS Standards have been incorporated into FAR by reference or in substance making them applicable to everyone. As we go through these standards, we will identify which ones have been incorporated in whole or in part into FAR.

We will not be covering the standards in consecutive order but rather, will group them by subject. For example, CAS 404 dealing with capitalization practices and CAS 409 dealing with depreciation of those capitalized assets are related and will be addressed separately, but consecutively. Both of these standards, by the way, have also been incorporated into FAR. Some standards are applicable to very few contractors. For example, CAS 413 and 416 deal primarily with defined benefit pension plans. Back in the 70's when these standards were adopted, defined benefit pension plans were popular. Now they're not and except for "grandfathered" employees, most contractors have adopted some form of defined contribution plan.

Some contracts are exempt from CAS. CAS applies only to negotiated contracts. Sealed bids, awards based on adequate price competition without submission of cost or pricing data, contracts in which the price is set by law or regulation, and commercial items are all exempt. Additionally, contracts under $700 thousand, contracts awarded to small businesses (as defined by SBA) and contracts executed and performed outside of the United States are also exempt.

There are two levels of CAS coverage, full and modified. The thresholds for full and modified coverage are $50 million and $7.5 million respectively in CAS covered contracts. Modified CAS coverage requires compliance with CAS Standards 401, 402, 405, and 406. Full CAS coverage requires compliance with all 19 CAS Standards.

Next: CAS 401 - Consistency in Estimating, Accumulating and Reporting Costs

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