CAS 410 – Allocation of Business Unit General and Administrative (G&A) Expenses to Final Cost Objectives (Part 2 of 3)

*This is Part 2 of a 3-part blog.  Each part addresses the fundamental requirements and techniques for application related to the standard, and provides specific examples. Part 1 addressed the overall purpose of the standard, as well as the requirements/techniques related to the G&A expense pool. This Part 2 addresses the requirements/techniques for application related to the G&A allocation base. Part 3 will address special allocations of G&A expenses. Background:  To provide criteria for the allocation of business unit general and administrative (G&A) expenses to business unit final cost objectives.  The standard also provides criteria for allocating home office expenses received by the business unit segment to business unit final cost objectives (CAS 410-20). G&A Allocation Base A business unit may perform G&A activities for … Continue reading

CAS 410 – Allocation of Business Unit General and Administrative (G&A) Expenses to Final Cost Objectives (Part 1 of 3)

*This is Part 1 of a 3-part blog.  Each part addresses the fundamental requirements and techniques for application related to the standard, and provides specific examples. This Part 1 addresses the overall purpose of the standard, as well as the requirements/techniques related to the G&A expense pool. Part 2 will address the requirements/techniques for application related to the G&A allocation base. Part 3 will address special allocations of G&A expenses. Background:  To provide criteria for the allocation of business unit general and administrative (G&A) expenses to business unit final cost objectives.  The standard also provides criteria for allocating home office expenses received by the business unit segment to business unit final cost objectives (CAS 410-20). What it covers: The allocation of business unit G&A costs … Continue reading

Adding Value to the Company: Moving to Dismiss Claims Under the Contract Disputes Act for Statute of Limitation Violations

To say that there is a crisis surrounding the closing of government contracts, especially large cost-type contracts held by large government contractors, would certainly not be an understatement. [i]  Closing a contract essentially requires verification that the goods or services have been provided and that final payment has been made to the contractor. Audits are the tools the government uses to support contract closeouts.  However, the government is seemingly taking forever to perform various audits of government contracts.  To illustrate, the Defense Contract Audit Agency, the audit arm of the Department of Defense, had a backlog of 25,000 incurred cost audits at the end of Fiscal Year 2011, some dating as far back as 1996. GAO, Defense Contracting:  DOD Initiative to Address Audit Backlog Shows … Continue reading

CAS 409 – Depreciation of Tangible Capital Assets (Part 1 of 3)

*This is Part 1 of a 3-part blog.  Each part addresses the fundamental requirements and techniques for application related to the standard, and provides specific examples. This Part 1 addresses the general requirements/techniques, as well as those related to determining the estimated useful life of a tangible capital asset. Part 2 will address the area of depreciation methods and the determination of estimated residual values. Part 3 will address the accounting for gains/losses, cost allocation, and accounting for assets acquired prior to the applicability of CAS 409. Background: This standard provides the criteria for assigning costs of tangible capital assets to cost accounting periods and for allocating such costs within such periods in an objective and consistent manner.  The basic concept is that the amount … Continue reading

CAS 404 – Capitalization of Tangible Assets (Part 2 of 2)

*This is Part 2 of a 2-part blog. Part 1 of this blog addressed (i) the basic fundamental requirements at CAS 404-40(a), 404-(b)(1), and 404-(b)(2); and (ii) the techniques for application at CAS 404-50(a), as well as the fundamental requirements that relate to those techniques. This Part 2 of the blog addresses the techniques for application at CAS 404-50(b) thru (f). Background: As noted in Part 1 of this blog, this standard is primarily concerned with the measurement of costs, and the assignment of those costs to accounting periods. When a contractor purchases an item, CAS 404 provides the criteria for determining whether or not to assign the entire amount of the asset cost in the year of purchase (expense the asset), or to spread … Continue reading

CAS 404 – Capitalization of Tangible Assets (Part 1 of 2)

*This is Part 1 of a 2-part blog.  This Part 1 addresses (i) the basic fundamental requirements at CAS 404-40(a), 404-(b)(1), and 404-(b)(2); and (ii) the techniques for application at CAS 404-50(a), as well as the fundamental requirements that relate to those techniques.  Part 2 of the blog will address the techniques for application at CAS 404-50(b) thru (f), as well as the fundamental requirements that relate to those techniques.   Background:  This standard is primarily concerned with the measurement of costs, and the assignment of those costs to accounting periods.  When a contractor purchases an item, CAS 404 provides the criteria for determining whether or not to assign the entire amount of the asset cost in the year of purchase (expense the asset), or … Continue reading

CAS 402- Consistency in Allocating Costs Incurred for the Same Purpose

Purpose/Fundamental Requirement: Each type of cost shall be allocated only once and on only one basis to any contract or other final cost objective.  The standard is necessary to prevent double counting, which occurs when one or more cost items (incurred for the same purpose and in like circumstances) are charged inconsistently (some as a direct cost and others as an indirect cost).  This requirement applies to both estimated and actual costs incurred.  The standard provides a materiality exception, stating that any direct cost of a minor dollar amount may be treated as an indirect cost where the accounting treatment for such cost is consistently applied to all final cost objectives, provided that it produces substantially the same results as if the cost had been treated … Continue reading

FAR 52.230-6, Administration of Cost Accounting Standards

NOTE: This is Part II of a two-part series on this clause.   Applicability: This FAR contract clause is incorporated into all contracts subject to the Cost Accounting Standards.  The clause focuses on administering the requirements imposed under the Cost Accounting Standards.   This clause provides a process for the contractor and CFAO to administer (1) changes in cost accounting practice (required, unilateral, and desirable changes), and (2) noncompliances.  In this Part 2 of the two part series, we will address noncompliances.  Note that a Government final determination in administering all CAS issues is made by the Cognizant Federal Agency Official (CFAO).  The Procuring Contracting Officer (PCO) must delegate CAS administration to the CFAO, i.e., the PCO is not authorized under the FAR to make CAS determinations. … Continue reading

FAR 52.230-6, Administration of Cost Accounting Standards

* NOTE: This is Part I of a two-part series on this clause:   Applicability: This FAR contract clause is incorporated into all contracts subject to the Cost Accounting Standards.  The clause focuses on administering the requirements imposed under the Cost Accounting Standards.   This clause provides a process for the contractor and CFAO to administer (1) changes in cost accounting practice (required, unilateral, and desirable changes), and (2) noncompliances.  In this Part 1 of the two part series, we will address changes in cost accounting practice.  Note that a Government final determination in administering all CAS issues is made by the Cognizant Federal Agency Official (CFAO).  The Procuring Contracting Officer (PCO) must delegate CAS administration to the CFAO, i.e., the PCO is not authorized under the … Continue reading

CAS 401 – Consistency in Estimating, Accumulating, and Reporting Costs

Provision of the week:  CAS 401-50(a)  {48 CFR 9904.401-50(a)}   Provision:  The level of detail in estimating shall be such that any significant cost can be compared with the actual cost accumulated and reported.   Example of a Compliant Practice:  The contractor estimates direct labor costs using average labor categories.  The accounting system provides a crosswalk that shows which employees are included in each labor category, and the computations of the averages.  The contractor accumulates and reports (bills on invoices) based on actual labor costs paid to employees that worked on the contract.  This is in compliance with the contract because the estimating can be compared to the actual cost accumulation/reporting.  The average rates can be broken down to show the individual employee labor rates … Continue reading