A PDF of the below Comment Letter can be downloaded here »
Cost Accounting Standards Board
ATTN: Mr. Mathew Blum
Office of Federal Procurement Policy
725 17th Street NW
Washington, DC 20503
Submitted via email to: [email protected]
Subject: Financial Executives International Committee on Government Business Comments on CASB Staff Discussion Paper on Conformance of the Cost Accounting Standards (“CAS”) to Generally Accepted Accounting Principles (“GAAP”) for Capitalization of Tangible Assets and Accounting for Acquisition Costs of Material
Reference: CASB Case Number 2020-01
Mr. Blum:
I am pleased to offer the following comments on the Cost Accounting Standards Board (“CASB”) Staff Discussion Paper (“SDP”) on conformance of CAS to GAAP for Capitalization of Tangible Assets and Accounting for Acquisition Costs of Material (Federal Register notice dated September 18, 2020 - 85 FR 58399) on behalf of the Financial Executives International – Committee on Government Business (“FEI-CGB”). FEI is a professional association representing the interests of more than 10,000 chief financial officers, treasurers, controllers, tax directors and other senior financial executives from major companies throughout the United States. FEI represents both the providers and users of financial information. CGB formulates policy opinions on government contracting issues for FEI in line with the views of the membership.
FEI-CGB reviewed the CASB SDP prepared in response to the National Defense Authorization Act of FY2017 (Pub. L. 114–328, 130 Stat. 2273) which amended 41 U.S.C. 1501(c)(2) to require the Board to review CAS and conform them, to the extent practicable, to GAAP. As the SDP points out, CAS was designed to achieve uniformity and consistency in determining costs on US Government contracts. CAS focuses on the measurement, assignment and allocation of cost at the contract level. GAAP is a common set of accounting pronouncements that prescribe how financial statements are prepared, including recognition, measurement, presentation and disclosure. The purpose of GAAP is to provide a conceptual framework and acceptable accounting methods and practices for financial reporting.
Given that there is some overlap in membership between FEI-CGB and the Aerospace Industries Association (“AIA”) Cost Principles Committee (“CPC”), FEI-CGB is aware of, and generally endorses, the technical content of AIA’s comments on CASB Case Number 2020-01. Specifically, FEI-CGB agrees with AIA’s responses to the queries on the comparisons to the GAAP and CAS requirements presented in the appendices to the AIA letter, and thus incorporates those appendices to this response. FEI-CGB’s comments concerning other aspects of the SDP are presented below.
Comments on the Guiding Principles for Evaluating Benefits and Drawbacks:
On the surface, the initiative to streamline the US Government procurement process by shifting reliance for government cost accounting from CAS to GAAP makes sense. Specifically, all public companies and nonprofit organizations are already required to prepare financial statements based on GAAP. Accordingly, using GAAP to govern government contract cost accounting would seem to eliminate the administrative effort needed to maintain an additional “set of CAS books” (i.e., the CAS specific entries) to meet CAS requirements. For example, the SDP considers using GAAP accounting for Capitalization of Tangible Assets and Acquisition of Material. GAAP would be used not only for financial reporting, but also for estimating, reporting, and accumulating costs for Government contracting purposes. However, FEI-CGB strongly believes that any significant potential benefit from the conformance of CAS to GAAP will be achieved only if (i) compliance is based solely upon GAAP requirements and (ii) compliance determinations reflect the results of reviews performed by the individual company’s outside audit firms who have both the proficiency and practical experience to determine compliance with GAAP.
Comments on CAS-GAAP Conformance for CAS 404 and CAS 411:
The SDP’s grouping of the standards relative to the anticipated opportunity for conformance with GAAP appears reasonable. However, the underlying theory of the CAS-GAAP conformance initiative appears to be that a combination of CAS 401, CAS 402, and CAS 406 (i.e., the Principal Three CAS) combined with increases in the scope of GAAP requirements since the earlier establishment of the individual Standards potentially renders CAS coverage in some areas as more or less redundant and unnecessary. GAAP coverage in these areas has increased significantly over the years to the point where the CAS and GAAP concepts are much the same in many respects. A recent survey of AIA membership shows little material risk to the Government if CAS 404 and CAS 411 were eliminated.
Removal of a Standard has the potential to eliminate time and expense for the US Government (i.e., the CASB, Government audit agencies, and Government contracting officers) and contractor support for CAS audits (e.g., Government requested briefings and data for reviews and testing). The alignment of CAS with GAAP, where appropriate, provides standardization of costing for Government Contractors. There should be fewer adjustments required to match financial statements with CAS contract requirements. This would also provide a more understandable contracting environment for companies considering doing business with the Federal Government.
If you wish to engage with the FEI-CGB on this matter, we would be amenable to meeting with you at your convenience. Please contact Ms. Marisa Peacock at the FEI office in Morristown, NJ at phone number (973) 765-1007or email at [email protected] for arrangements.
Thank you for your consideration in this matter.
Respectfully,
Mark A. Smith
Chairman, Financial Executives International – Committee on Government Business
Andrej Suskavcevic
President & CEO, Financial Executives International