Cost Accounting Standards

Cost Accounting Standards
Name	Cost Accounting Standards
Established	1970
Jurisdiction	United States Federal Contracting
Parent agency	United States Department of Defense; General Services Administration; National Aeronautics and Space Administration
Related	Federal Acquisition Regulation; Defense Contract Audit Agency; Contract Disputes Act of 1978

Cost Accounting Standards Cost Accounting Standards provide mandated rules for allocating, measuring, and reporting costs in United States Department of Defense and civilian procurement contracting involving General Services Administration and National Aeronautics and Space Administration. They aim to ensure consistent treatment of costs for contractors supplying to United States Armed Forces, NASA, and other federal agencies, reducing disputes under statutes like the Contract Disputes Act of 1978. The standards interact with procurement instruments governed by the Federal Acquisition Regulation and oversight by audit bodies such as the Defense Contract Audit Agency and the Inspector General of the Department of Defense.

Overview and Purpose

The standards were created to provide uniform criteria for cost accounting practices used when negotiating and administering contracts with agencies such as the United States Department of Defense, National Aeronautics and Space Administration, and the General Services Administration. They address allocation methods, cost measurement, and disclosure requirements to prevent inconsistent practices that previously led to contested claims before tribunals like the United States Court of Federal Claims and arbitration panels under the Armed Services Board of Contract Appeals. By prescribing rules, they support financial reporting relied upon by auditors from the Defense Contract Audit Agency and contracting officers at the Department of Defense.

History and Development

The standards originated from congressional responses in the late 1960s to cost allocation controversies involving contractors to the Department of Defense and other agencies. Legislative activity in the United States Congress and oversight hearings influenced the creation of a formal board that promulgated regulations adopted across agencies represented by the Office of Management and Budget and the General Services Administration. Over time, amendments were influenced by decisions from tribunals such as the United States Court of Federal Claims and policy directives from the Department of Defense acquisition community, with ongoing interactions with the Federal Acquisition Regulation Council.

Scope and Applicability

Applicability extends to contractors and subcontractors when contracts contain clauses derived from standards promulgated by the board and incorporated into solicitations by agencies including the Department of Defense, National Aeronautics and Space Administration, and General Services Administration. Thresholds, exemptions, and disclosure requirements are codified in implementing regulations used by contracting officers at the Defense Contract Management Agency and audited by the Defense Contract Audit Agency. Coverage depends on contract type, award value, and whether a contractor has previously certified compliance under provisions influenced by the Federal Acquisition Regulation and agency acquisition policies.

Key Standards and Principles

Core principles govern measurement, allocation, and assignment of direct and indirect costs, including standards on consistency of cost accounting practices, allocation of home office expenses, and rules for composition of indirect cost pools. The rules were framed to address issues raised in landmark disputes adjudicated before the Armed Services Board of Contract Appeals and the United States Court of Federal Claims, and to align with audit expectations from the Defense Contract Audit Agency and Inspector General of the Department of Defense. Specific provisions require disclosure statements and set forth methods used by contractors for cost allocation, with policy harmonization efforts coordinated through the Office of Federal Procurement Policy.

Compliance and Certification

Contractors subject to the standards must submit disclosure statements and may be required to obtain certification or demonstrate adherence during preaward surveys conducted by the Defense Contract Audit Agency or contract administration offices such as the Defense Contract Management Agency. Noncompliance can lead to contract cost disallowances, audit findings referred to the Department of Justice for recovery actions, and disputes resolved under the Contract Disputes Act of 1978 or before the Armed Services Board of Contract Appeals. The process interacts with procurement officials in agencies like the General Services Administration for remedial contract actions and corrective compliance plans.

Implementation and Measurement

Implementation requires contractors to establish, document, and maintain accounting systems consistent with disclosure statements reviewed by auditors from the Defense Contract Audit Agency and overseen by contracting officers at the Department of Defense and General Services Administration. Measurement of allocable costs, creation of indirect cost pools, and consistent treatment of allocable bases are audited with reference to standards and guidance produced by the Office of Management and Budget and coordination with the Federal Acquisition Regulation Council. Contractors often engage external certified public accounting firms and specialists familiar with rulings from the United States Court of Federal Claims to validate measurement approaches.

Impact on Contract Pricing and Auditing

The standards influence contract pricing strategies used by contractors competing for awards from the Department of Defense, National Aeronautics and Space Administration, and General Services Administration by constraining allowable cost allocations and shaping indirect rates reviewed in proposals. Auditors from the Defense Contract Audit Agency and procurement authorities apply the rules when determining incurred cost submissions, negotiating forward pricing rates, and assessing whether costs are allocable and allowable under standards referenced in the Federal Acquisition Regulation. Enforcement outcomes, appeals to the Armed Services Board of Contract Appeals, and litigation before the United States Court of Federal Claims continue to refine interpretations affecting price negotiation and postaward audit adjustments.

Category:Accounting