Defense contractors to CASB: what is an accounting change?

Article Abstract:

Defense contractors need to have a clear definition of what constitutes an accounting change from the Cost Accounting Standards Board (CASB). Defense contractors face important financial consequences from changes in accounting standards, but the CASB has so far failed to clarify procedures. Contractors typically are denied increases in contracting costs for any additional costs that result from a voluntary change in accounting practices, which can significantly affect contractors that create a new production division and transfer some of the current work from the old division to it. The clause limiting the recovery of cost overruns caused by voluntary accounting changes is intended to protect the government from arbitrary changes in accounting practices by contractors, but it creates problems for contractors that need to effect accounting changes. APB 20 states that a change in accounting equates to a change in an accounting principle, accounting estimate, or reporting enterprise. However, APB 20 does not adequately address internal reorganizations, an issue that needs to be addressed by the CASB.

Methods, Defense industry, Managerial accounting

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Return of the Cost Accounting Standards Board

Article Abstract:

The Cost Accounting Standards Board (CASB) was disbanded in 1980 by Congress due to controversy over the great number of standards it had issued. However, the lack of the CASB led to a lack of clarity in situations demanding an interpretation of provisions as regards changes in procedures related to Department of Defense procurement contracts. The CASB was reformed in 1990 and will address the backlog of issues and problems that have built up in the 10 years. The objectives of the board were to increase the uniformity of cost accounting practices used by government contractors, establish consistent cost accounting practices for like circumstances, and require contractors to disclose their cost accounting methods in writing. Some of the issues facing the reformed CASB include cost impact proposals where there are accounting changes; the use of special business units, contracting units that exist only on paper; and the allocation of state income and franchise taxes.

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CASB considers accounting changes

Article Abstract:

The Cost Accounting Standards Board (CASB) announced three individual proposals in Sep. 1996. The most significant of these was the one suggesting revisions of requirements for government contractors who modify their cost accounting practices. This proposed rule provides more explicit guidelines in determining if a change in the accumulation of ongoing costs in cost pools for allocation can be considered a change in cost accounting practice. The second proposal was about the allocation of selling and marketing costs, which sought to prevent confusion regarding decisions on the allocation of selling and marketing costs as direct or indirect costs. Finally, the third proposal dealt with the measurement, allocation and period assignment of the costs of postretirement health and life insurance benefits.

Building, Developing, and General Contracting, Contract Construction, Construction industry, Marketing management, Construction contracts, Retirement benefits

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