CAS Working Group Guidance - Part XV

Today we continue our series on the CAS Working Group Guidance Papers. Between 1975 and 1981, DoD convened a group of CAS "experts" to come up with practical solutions to issues that contracting officers were facing in trying to interpret and apply the (then) new rules and regulations being promulgated by the Cost Accounting Standards Board (CASB). During that time, the Working Group published a total of 25 "interim" guidance papers. According to DoD, twenty of the 25 interim papers are still current. The complete working group guidance papers can be downloaded here. Today we will discuss the CAS Disclosure Statement.

WG 77-20 - Policy for Withdrawing Determination of Adequacy of Disclosure Statement
Government contractors and subcontractors are required, as a condition of contracting, to disclose in writing an adequate description of their cost accounting practices. A Disclosure Statement is considered adequate if it is current, accurate and complete. According to the DoD, there was wide confusion as to the right of the Government to withdraw the determination of adequacy when the disclosed practices where no longer considered adequate.

Questions arose as to whether the ACO has a right to withdraw an adequacy determination that was previously given. Any consideration of the factors bearing on this question would indicate that the contracting officer not only has a right but also a duty to take such action if a Disclosure Statement is determined, at any time, to be inadequate. Failure to do so would relieve the contractor of any requirement to maintain the statement in a current, accurate and complete status after the initial determination of adequacy had been given. This would ultimately render the document completely useless.

There is seldom a problem in determining whether a Disclosure Statement is current or accurate. There is a problem in determining whether it is complete. To be complete the statement must contain a level of detail adequate to fuly discuss the accounting practices which the contractor employs. At the same time there is no need for burdening the statement with minuscle descriptions of accounting procedures that will have no discernible effect on the flow of costs even if they are changed from time to time.

A determination that the level of detail in a Disclosure Statement is adequate, is judgmental and thus the detail should be expected to vary from contractor to contractor or even between cost centers of a particular contractor depending upon the volume or mix of business or complexity of the accounting system. As the volume increases the mix changes or accounting procedures become more complex, the Disclosure Statement would be expected to become more detailed.

Materiality appears to be the key word in determining what level of detail should be required. Thus, accounting procedures which, if changed, would not have a material effect on the flow of costs, either now or in the foreseeable future, should probably not be included in the Disclosure Statement.

Guidance: 
Materiality should be a major factor in deciding the level of detail required to be disclosed. A prime consideration should be whether a change in accounting procedure at the level of detail under consideration would have a material effect on the flow of costs, now or in the near future.

The level of detail needed to adequately describe the accounting practices will vary depending upon volume or mix of work in the plant or cost center, or complexity of the accounting system.

Contractors should be advised immediately when a revision to the Disclosure Statement is considered necessary.

ACO's do have authority to withdraw an adequacy determination previously given for a Disclosure Statement, but action to withdraw the determination should not be taken unless the issue is material and the contractor will not make the revision.