Cost and Pricing Considerations - Requirements for CAS Covered Contractors
Disclosure Statement. A joint venture qualifying as a segment must file a separate disclosure statement if its specific contract or overall CAS covered contracts exceed the $25 million threshold or it meets the "significant segment" test (e.g. receiving a CAS-covered contract or subcontract over $500,000 and its CAS covered awards are more than 30% of total segment sales for the preceding period and more than $10 million). In addition, special allocations and methods of pricing interorganizational transfers need to be disclosed.
Accounting Changes. When changes to accounting practices occur, CAS covered contractors need to inform the CO, often prepare cost impact statements, and even adjust contract prices. Under the current definition, the establishment of a new segment for home office expense allocation is not considered a change in accounting practice unless the method or technique used to allocate, measure or assign costs change. Under new proposals, the definition of an accounting change will expand to include most cost shifts that result from an organization change whether or not the method or techniques changed. If the proposals are accepted, then DCAA will likely assert changes have occurred for either joint ventures or SBUs.
In the event auditors assert accounting changes have occurred before the changes are made, contractors can make two arguments. First, to the extent an alleged change involves the initial establishment of practices for allocating costs to joint ventures and SBUs, the regulations (302-2) provides that the adoption of a new practice for the first time a cost is incurred or a function is created is not a change in accounting practice. Secondly, in the case where joint ventures and SBUs occurred in the past, if the contractor’s method or technique for measuring, assigning or allocating cost is consistent with those used for past joint ventures or SBUs, there would be no basis for claiming a change occurred even if the creation of the new entity resulted in changes to the composition of pools and bases.
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