Difference between revisions of "Cost Accounting Practice Change"

Revision as of 13:47, 25 February 2015

Cost Accounting Practice Change

History -- Final Rule Issued June 14, 2000

• Concludes CAS case begun in 1993

• Significantly reduced Scope

Introduction

A Change in Accounting Practice is any alteration 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. ^[1]

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. ^[2], 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.

3 Types of Changes

Required Change

Cost Accounting Practice change is required because of a new standard or changed standard

Unilateral Change

Unilateral and Desirable Changes

The contractor may unilaterally change its disclosed or established cost accounting practices, but the Government shall not pay any increased costs, in the aggregate, as a result of the unilateral change.

Contractor changes from one compliant method to another

Desirable

Term normally used by government, identifying whether the change is "desirable" to them.

Requirements - Contractor

• FAR requires 60 day notice of any change in Accounting Practice, with a description of the change, and whether the change should be retroactively applied,

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

• General Dollar Magnitude (if material, then a Cost Impact)

• Cost Impact

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

Examples of Changes in Cost Accounting Practice

Organizational changes which result in a change in the measurement of costs, the assignment of costs to cost accounting periods, or the allocation of costs to cost objectives should be considered to be changes in cost accounting practice requiring an adjustment to CAS-covered contracts for any increased costs.

A corporate reorganization that involves a change in the grouping of segments for home office expense allocation purposes should not be considered a change in accounting practice unless the method or technique used to allocate the costs changes.^[3]

The Govt's position is that a change in accounting "method or technique" (practice) includes any change in the size adn composition of the segment base or cost pools. The govt. argues that if a segment base is expanded by putting more segments into the base, or by merely increasing the size of the underlying segments, that constitutes a change in accounting methods or techniques that requires the contractor to file a cost impact proposal. Martin Marietta Corporation (MMC) contends that changes in cost accounting methods or techniques do not encompass size changes, but rather they are limited to changes in the methodologies of how indirect costs are accumulated in costs pools or are allocated to the segment bases.

Related Topics

FAR 52.230-3 Disclosure and Consistency of Cost Accounting Practices

References and Notes

1. ↑ (48 CFR 9903.302)
2. ↑ (48 CFR 9903.302)
3. ↑ U.S. Court of Appeals for the Federal Circuit No. 93-1164...Secretary of Defense v. Martin Marietta Corp. Decided Feb. 10, 1995