welcome to understanding the cost accounting standards …...• dcaam 7641.90, figure 5 7. polling...

Welcome to Understanding the Cost Accounting Standards (CAS)

Presented by: Gelman, Rosenberg & Freedman CPAs,Aldebaron, Inc. (SYMPAQ) and

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Webinar Objectives

Learning ObjectiveTo provide attendees with a better understanding of Cost Accounting

Standards (CAS)

Instructional Delivery MethodsGroup Internet-based

Recommended CPE1.5 CPE Credit

Recommended Fields of StudyAccounting

PrerequisitesNone required

Advance PreparationNone

Program LevelBasic

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Housekeeping


Paul H. Calabrese

Principal

Gelman, Rosenberg & Freedman CPAs

G. Chris Brown

President

Aldebaron, Inc. (SYMPAQ)

Steven L. Shamlian

President

Government Contract Compliance

Management, LLC

Yevgeniy Sukhenko

Supervisor


Understanding the Cost Accounting Standards (CAS)

GovCon Webinar Series: Part 5 of 5

April 23, 2019

Presenters ModeratorFeatured Guest Speaker

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Paul H. Calabrese

Principal


Our Team

6

Meet Your Instructors

G. Chris Brown

President

Aldebaron, Inc. (SYMPAQ)

Steven L. Shamlian

President

Government Contract Compliance

Management, LLC

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Source

• The Cost Accounting Standards (CAS) in FAR 9903 and 9904

• DCAAM 7641.90, Figure 5

7

Polling Question #1Is it more important to first have a CAS-compliant system or FAR-compliant accounting system?a. CAS-compliant

b. FAR-compliant

c. Both

d. I am new to this

Understanding CAS

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Overview

• CAS Applicability

• Significance of CAS Thresholds

• Application of CAS Thresholds

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CAS Applicability

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Purpose of CAS

• Achieve uniformity and consistency in cost accounting practices among contractors and

subcontractors

• Assignment, measurement and allocation of cost

• Prerequisite to contracting

o Disclose cost accounting practices

o Agree to downward price adjustment if non-compliance w/standard, disclosed or established practice

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Contracts Exempt from CAS

• Sealed Bid

• Award values less than $750,000

• Small Business

• Foreign Governments

• Price set by law or regulation

• FFP & FPEconomicPriceAdjustment, T&M, fixed labor hour contracts for acquisition of commercial items

• Award value less than $7.5 million if not performing on CAS covered contracts valued at $7.5 million

• FFP with price competition and with no cost or pricing data submitted

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Exemption from CAS

• Price or Costing Data Threshold

o FAR 15.403-4(a1)

o $750,000

• Exemption to CAS Coverage

o $750,000

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Exemption from CAS

Contracts or subcontracts having an awarded

value of less than $7,500,000

• Provided that, at the time of award, the business unit of

the contractor or subcontractor is not currently

performing any CAS-covered contract or subcontract

with a value > = $750,000

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Continued

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Exemption from CAS

Definition of “currently performing”

• “a contractor has been awarded a contract, but has not yet received

notification of final acceptance of all supplies, services, and data

deliverable under the contract (including options)”

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Continued

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Exemption from CAS

• Initial $750,000 trigger

o “negotiated contracts and subcontracts not in excess of $750,000” tied to TINA threshold (Truthful Cost or Pricing Data)

• The $7.5 million threshold applies only if there is not one, single CAS-covered contract currently

being performed

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Continued

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CAS Coverage and Disclosure Statement Determination

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DCAAM 7641.90

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CAS Coverage and Disclosure Statement Determination

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DCAAM 7641.90 – continued

What is the significance of the CAS thresholds?

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Assessing Cost Impact

• Contract by contract basis: exempt from CAS, modified or full CAS coverage

• Measure the potential value of applicable modified and/or full CAS contracts

• Compute impact from point of non-compliance or change to end of contract(s)

• Determine impact on a Business Unit by Business Unit basis (if more than one)

• CAS status (modified or full) may change from fiscal year to fiscal year

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Complex Matrix

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Definition of Business Unit

• Business unit means any segment of an organization, or an entire business organization which is

not divided into segments.

• Segment means one of two or more divisions, product departments, plants, or other subdivisions of

an organization reporting directly to a home office, usually identified with responsibility for profit

and/or producing a product or service. The terms include Government-owned contractor-operated

(GOCO) facilities, and joint ventures and subsidiaries (domestic and foreign) in which the

organization has a majority ownership.

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Application of Coverages

• Types of CAS Coverage

• FAR 9903.201-2(b), Modified, § (1) – (3)

o Modified status for a Business Unit (BU) that receives less than $50 Million (M) in net awards in the previous accounting

period where no one contract award was greater than $50 M

o Modified coverage involves only 4 CAS standards 401, 402, 405 and 406, and not the entire 19 CAS standards

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Polling Question #2What happens to an exempt contract from CAS if the business unit is either modified CAS or Full CAS?a. The contract can only be modified CAS

b. The contract can only be Full CAS

c. The contract remains exempt from CAS

d. I am new to this

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• If one contract is awarded as modified CAS then all CAS contracts awarded thereafter during that

fiscal period awarded to that B.U. have Modified coverage

• Exception to prior rule

o If B.U. receives one CAS covered contract that is greater than $50 M, then that contract and all other contracts thereafter

receive Full CAS coverage during the same fiscal year

o Note: the contracts awarded with modified coverage before the $50 M award remain as having modified coverage

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Continued

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• Principal regarding CAS Coverage

o Once a contract has modified coverage, it will not change its coverage regardless if the B.U. has a change of status (type of

CAS coverage) in subsequent accounting periods

o Likewise, once a contract is full covered, it is always fully covered

o Likewise, once a contract is exempt from CAS coverage, it is always exempt from CAS

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Continued

Application of the CAS Thresholds

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Application of Thresholds

• Importance of CAS tracking system

o Identifying contracts with CAS clause

o FAR 52.230-6

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Application of Thresholds

• CAS tracking system must measure an award

• Net awards

o “the total value of negotiated CAS-covered prime contract and subcontract awards, including the potential value of contract

options, received during the reporting period minus cancellations, terminations, and other related credit transactions”

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Continued

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Example: CAS 418

• If B.U. has full CAS coverage in current fiscal

period – FY 2018

o Previous contracts remain exempt from CAS, such as the

small business exemption

o Previous year’s modified CAS contracts are not impacted

by 418

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Non-Compliance in FY 2018

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Example: CAS 418

• If B.U. has full CAS coverage in fiscal period – FY 2018

o Only contracts with full CAS would be impacted by the 418 non-compliance

Consideration of materiality

Compute impact from the date of the non-compliance until the completion of each of the identified contracts with FULL

CAS Coverage

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Non-Compliance in FY 2018 – continued

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Example: CAS 418

• Allocation can still be challenged on the modified CAS and exempt contracts

o FAR 31.201-4 Determining allocability

o Cost adjustments would only apply in years with unsettled burden rates via incurred cost package

o Cannot adjust FFP, only flexibly priced contracts

o Unlike cost impact statements, it would not apply to future years until the end of those contracts, i.e. fiscal periods not yet

started

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Non-Compliance in FY 2018 – continued

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Example: CAS 401

• If B.U. has modified coverage in fiscal period FY 2018

o Contracts with exempt status would remain exempt

o Modified CAS contracts awarded would be impacted during FY 2018

• In the above scenario of modified coverage, a non-compliance would only apply to four CAS

standards : CAS 401, 402, 405, 406

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Non-Compliance in FY 2018

Cost Accounting StandardsA 30,000 Foot Review

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Cost Accounting Standards

• How many want CAS-covered contracts?

• How many want to become successful businesses, with big Government contracts, providing goods

and services that no one else can provide?

• How many want to continue as a small business making good money with little oversight?

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A 30,000 Foot Review

CAS Coverage Should Be A Strategic Business Decision

What Could Possibly Go Wrong?

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What Could Possibly Go Wrong

• Failure to comply with standards

• Failure to consistently follow your established cost accounting practices

• Failure to timely disclose changes to cost accounting practices

• Failure to appropriately represent your level of CAS coverage

o Exempt

o Modified coverage

o Full coverage

DS Digression – Max vs. Min

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Consequences

• Failure to have contracts awarded

• Retroactive price adjustments plus interest

• Retroactive price adjustments without interest

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Computation of Cost Impact

• Include all affected CAS-covered contracts and subcontracts regardless of their status (i.e., open or

closed) or the fiscal year(s) in which the costs are incurred (i.e., whether or not the final indirect

rates have been established) (FAR 30.604(h))

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FAR 30.604(h)

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Computation of Cost Impact

Increased Cost to the Government

• Flexibly-priced contracts

o the estimated cost to complete or cost accumulated using the changed practice exceeds the estimated cost to complete using

the current practice

• Fixed priced contracts

o the estimated cost to complete or cost accumulated using the changed practice is less than the estimated cost to complete

using the current practice

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FAR 30.604(h) – continued

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Avoiding the Consequences

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Exempt

Exemptions:

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Not CAS - Covered

• Contracts less than $750,000 prior to award of a CAS-covered contract of at lease $7.5 million

Modified CAS – Covered

• Contracts greater than $750,000 after award of a CAS-covered contract of $7.5 million

Full CAS – Covered

• Upon award of a CAS-covered contract of $50 million

• The year following $50 million in CAS-covered awards

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Threshold

Polling Question #3Considering only the thresholds, how large does a contractor have to be to have CAS-covered contracts?a. Only the LockheedMartin, NorthropGrummans, etc. of the world.

b. Significant contractors with at least $100 million of annual sales.

c. Contractors that are smaller than the regulators thought

d. All the above

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Fundamental Concepts

• Cost accounting practices should be followed consistently

o Cost accounting practice

Measures costs

Assigns costs to cost accounting periods

Allocates costs to cost objectives (both direct and indirect allocation)

• Allocations of costs are based on a causal or beneficial relationship of the costs to the cost

objectives

o Homogeneous costs may be grouped into cost pools

• The enterprise will continue

o The life of the enterprise is divided into cost accounting periods

o Depreciation or amortization of assets or liabilities is over the useful life of the asset or liability

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Compliance

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Illustration of Consistency

• Estimating, accumulating, and reporting costs (CAS 401)

• Allocating costs incurred for the same purpose (CAS 402)

• Accounting for unallowable costs (CAS 405)

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Illustration of Homogeneity

• Costs from a home office (CAS 403)

• Standard costs (CAS 407)

• Allocation of G&A expenses (CAS 410)

• Material (CAS 411)

• Direct and indirect costs (CAS 418)

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Illustration of Continuity of the Enterprise

• Depreciation of capital assets (404 & 409)

• Cost accounting period (CAS 406)

• Cost of compensated personal absence (CAS 408)

• Pension (412 & 413)

• IRAD/B&P (CAS 420)

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What Will Happen

The Good

• Better position to win larger contracts for goods and services only you can provide.

The Bad

• Increased compliance cost

The Ugly

• Increased Government oversight

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A Strategic Decision

• Anticipate or avoid coverage by knowing the exemptions and thresholds

• Follow the concepts applicable to your business

• Internal controls to document cost accounting practices and follow them consistently

50

Questions

Paul H. [email protected]

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Bethesda, MD 20814

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G Chris [email protected]

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Rockville, MD 20855

301-670-0858 | www.sympaq.com

Steven L. [email protected]

Washington, DC

703-350-8010 | www.gccm-llc.com




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welcome to understanding the cost accounting standards …...• dcaam 7641.90, figure 5 7. polling...

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