Cost Accounting Practice Change

Cost Accounting Practice Change

History -- Final Rule Issued June 14, 2000

• Concludes CAS case begun in 1993

• Significantly reduced Scope

Change in Accounting Practice

A Change in Accounting Practice is any change to a disclosed or established accounting method or technique which is used for allocation of costs to cost objectives, assignment of costs to cost accounting periods, or measurement of costs.

Examples of Cost Accounting changes when there is a change in the method or technique for:

1. Determining whether a cost is directly or indirectly allocated.

2. Determining the composition of the cost pools.

3. Determining the selection of the allocation base.

4. Determining the composition of the allocation base.

Initial Adoption or Elimination of Costs

A change in practice has not occured if the initial adoption of a practice coincides with the first time a cost is incurred or function is created. , or

• Elimination (partial or total) of a costs or costs of a function is not a change in practice, or

• Revision of a practice for a previously immaterial costs is not a change in practice.

Types of Changes

Required Change

A required change occurs with the issuance of a new CAS standard, requirements based on laws, accounting practices required to be changed to maintain compliance with CAS.

(1) A change in cost accounting practice that a contractor is required to make in order to comply with applicable Standards, modifications or interpretations thereto, that subsequently becomes applicable to an existing CAS-covered contract or subcontract due to the receipt of another CAS-covered contract or subcontract; or

(2) A prospective change to a disclosed or established cost accounting practice when the CFAO determines that the former practice was in compliance with applicable CAS and the change is necessary for the contractor to remain in compliance.

30.603-1 Required changes

(a) General. Offerors shall state whether or not the award of a contract would require a change to an established cost accounting practice affecting existing contracts and subcontracts (see 52.230-1). The contracting officer shall notify the CFAO if the offeror states that a change in cost accounting practice would be required.

(b) CFAO responsibilities. Prior to making an equitable adjustment under the applicable paragraph (s) that address a required change at 52.230-2, Cost Accounting Standards; 52.230-3, Disclosure and Consistency of Cost Accounting Practices; or 52.230-5, Cost Accounting Standards-Educational Institution, the CFAO shall determine that-

(1) The cost accounting practice change is required to comply with a CAS, or a modification or interpretation thereof, that subsequently became applicable to one or more contracts or subcontracts; or

(2) The former cost accounting practice was in compliance with applicable CAS and the change is necessary to remain in compliance.

(c) Notice and proposal preparation.

(1) When the award of a contract would require a change to an established cost accounting practice, the provision at 52.230-7, Proposal Disclosure-Cost Accounting Practice Changes, requires the offeror to-

(i) Prepare the contract pricing proposal in response to the solicitation using the changed cost accounting practice for the period of performance for which the practice will be used; and

(ii) Submit a description of the changed cost accounting practice to the contracting officer and the CFAO as pricing support for the proposal.

(2) When a change is required to remain in compliance (for reasons other than a contract award) or to comply with a new or modified standard, the clause at 52.230-6, Administration of Cost Accounting Standards, requires the contractor to-

(i) Submit a description of the change to the CFAO not less than 60 days (or other mutually agreeable date) before implementation of the change; and

(ii) Submit rationale to support any contractor written statement that the cost impact of the change is immaterial.

(d) Equitable adjustments for new or modified standards.

(1) Required changes made to comply with new or modified standards may require equitable adjustments, but only to those contracts awarded before the effective date of the new or modified standard (see 52.230-2, 52.230-3, or 52.230-5).

(2) When a contractor elects to implement a required change to comply with a new or modified standard prior to the applicability date of the standard, the CFAO shall administer the change as a unilateral change (see 30.603-2). Contractors shall not receive an equitable adjustment that will result in increased costs in the aggregate to the Government prior to the applicability date unless the CFAO determines that the unilateral change is a desirable change.

Unilateral Change

Unilateral change by a contractor means a change in cost accounting practice from one compliant practice to another compliant practice that a contractor elects to make that has not been deemed desirable by the Cognizant Federal Agency Official (CFAO).

Desirable

A compliant change to a contractor’s established or disclosed cost accounting practices that the CFAO finds is desirable and not detrimental to the Government and is, therefore, not subject to the no increased cost prohibition provisions of CAS-covered contracts and subcontracts affected by the change.

Noncompliance

Non-compliance with Cost Accounting Standards

Requirements - Contractor

• FAR requires 60 day notice of any change in Accounting Practice, with a description of the change. The change will then be reviewed for adequacy and compliance by the cognizant federal agency, normally an Administrative Contracting Officer (ACO).

• All changes must be quantified, through one or both of the following steps;

• General Dollar Magnitude (GDM)

• Detailed Cost Impact (DCI)

Requirements - Government (CFAO)

Prior to making any contract price or cost adjustment the CFAO shall determine

• The contemplated contract price or cost adjusment will protect the Government from the payment of the estimated increased costs, in the aggregate; and
• The net effect of the contemplated adjustments will not result in the recovery of more than the increased costs to the Government

Related Pages

Cost Accounting Practice Change - Examples