Difference between revisions of "WG 76-8 - Interim Guidance on Use of the Offset principle in Contract Price Adjustments Resulting from Accounting Changes"
| Line 7: | Line 7: | ||
==Discussion== | ==Discussion== | ||
While the CAS Board explicity advocates the use of the offset technique to preclude contract price changes under voluntary type (i.e. (A)(4)(B) changes, teh technique can be equally useful in connection with mandtory changes, (i.e. (a)(4)(A) type, if used for the same general purpose of netting out contract price changes and thus reducing the number of individual contract price adjustments required. | While the CAS Board explicity advocates the use of the offset technique to preclude contract price changes under voluntary type (i.e. (A)(4)(B) changes, teh technique can be equally useful in connection with mandtory changes, (i.e. (a)(4)(A) type, if used for the same general purpose of netting out contract price changes and thus reducing the number of individual contract price adjustments required. | ||
| + | |||
No specific method for applying the offset concept has been established. It remains the responsibility of the Administrative Contracting Officer to address each specific situation in a way that best accomplished the overall objective. One method that may simplify the computation in many instances, as well as avoid the pitfalls described in item X of DPC 76-1, would be to compute the impact of a change by types of contracts (e.g., firm fixed price, cost type) and adjust as few contract prices as necessary within each group before merging the net impact from each contract group with that of other groups. Different approaches may provide a better procedure in other cases. For example, contracts may be grouped according to the relative materiality of the impact of the change (also see DPC 76-1). This type of segregation can be helpful in identifying contracts which can be eliminated from further consideration. | No specific method for applying the offset concept has been established. It remains the responsibility of the Administrative Contracting Officer to address each specific situation in a way that best accomplished the overall objective. One method that may simplify the computation in many instances, as well as avoid the pitfalls described in item X of DPC 76-1, would be to compute the impact of a change by types of contracts (e.g., firm fixed price, cost type) and adjust as few contract prices as necessary within each group before merging the net impact from each contract group with that of other groups. Different approaches may provide a better procedure in other cases. For example, contracts may be grouped according to the relative materiality of the impact of the change (also see DPC 76-1). This type of segregation can be helpful in identifying contracts which can be eliminated from further consideration. | ||
| + | |||
| + | Another issue concerns the extent to which the offset principle can be used when several organizational segments of a company are affected by the same accounting change. As a general rule, whenever costs are flowing either from a higher organizational level or between segments, the offset universe may cover all affected segments. For example, a change that affects the flow of costs from a home office to several segments could offset CAS covered contracts within all affected segments. However, accounting changes that only affect the flow of costs within individual divisions should be treated as changes within each division. | ||
Revision as of 09:45, 22 April 2014
==Interim Guidance on Use of the Offset Principle in Contract Price Adjustments Resulting from Accounting Changes[1]
Background
Paragraph (a)(4)(A) of the CAS clause provides for equitable adjustments when accounting system changes result from the issuance of new Cost Accounting Standards. Paragraph (a)(4)(B) of the CAS clause provides that the Contractor will negotiate with the Contracting Officer the terms and conditions under which a change to either a disclosed or established cost accounting practice may be made. These changes are generally referred to as "voluntary" changes. The (a)(4)(B) clause goes on to forbid any agreement that will result in increased costs being paid by the United States.
The interpretative language found in 4 CFR 331.70(f) advocates the offsetting approach with regard to voluntary changes whereby price adjustments are foregone to the extent that increases under one or more CAS-covered contracts are equaled or exceeded by decreases on toher CAS-covered contracts. However, CAS publications including the CAS clause shed no light on how the offset technique may be related to mandatory changes, simultaneous accounting changes, mult-divisional accounting changes adn changes affecting a diverse contractual mix.
Discussion
While the CAS Board explicity advocates the use of the offset technique to preclude contract price changes under voluntary type (i.e. (A)(4)(B) changes, teh technique can be equally useful in connection with mandtory changes, (i.e. (a)(4)(A) type, if used for the same general purpose of netting out contract price changes and thus reducing the number of individual contract price adjustments required.
No specific method for applying the offset concept has been established. It remains the responsibility of the Administrative Contracting Officer to address each specific situation in a way that best accomplished the overall objective. One method that may simplify the computation in many instances, as well as avoid the pitfalls described in item X of DPC 76-1, would be to compute the impact of a change by types of contracts (e.g., firm fixed price, cost type) and adjust as few contract prices as necessary within each group before merging the net impact from each contract group with that of other groups. Different approaches may provide a better procedure in other cases. For example, contracts may be grouped according to the relative materiality of the impact of the change (also see DPC 76-1). This type of segregation can be helpful in identifying contracts which can be eliminated from further consideration.
Another issue concerns the extent to which the offset principle can be used when several organizational segments of a company are affected by the same accounting change. As a general rule, whenever costs are flowing either from a higher organizational level or between segments, the offset universe may cover all affected segments. For example, a change that affects the flow of costs from a home office to several segments could offset CAS covered contracts within all affected segments. However, accounting changes that only affect the flow of costs within individual divisions should be treated as changes within each division.
References
- ↑ Working Group 76-8, 17 December 1976; Can be found at:https://acc.dau.mil/adl/en-US/33096/file/6425/W-CAS%20Working%20Group%20Interim%20Guidance-12057.pdf
