(Editor’s Note. We often find confusion by both contractor personnel and government representatives on what constitutes an accounting change. This confusion often leads to unfortunate results. For example, a contractor may not adopt a desirable practice for fear it is an accounting change requiring extensive justification when it really is not a change. Or conversely, a contractor may adopt a change and not realize it is a change requiring a justification or demonstration the government is not harmed. The new guidance represents the most current ideas on what constitutes an accounting change. It is presented in clearer terms than found in the cost accounting standards and includes new examples intended to illustrate the concepts.)

On January 17, 2002 the Director, Defense Procurement issued guidance to assist administrative contracting officers and auditors to determine when a change occurs in cost accounting practice under the cost accounting standards. The guidance, found at www.acq.osd.mil/dp, follows an unsuccessful seven year effort by the CAS Board to extensively redefine what constitutes a change in a cost accounting practices. Though the guidance formally addresses accounting changes for fully and modified CAS covered contractors, in practice, the guidance affects cost accounting changes for all contractors, whether CAS covered or not.

In summary form, the guidance states ACOs and auditors should use the following to determine if a change occurs:

1. An accounting change occurs when there is a change in the method or technique for determining (a) whether a cost is direct or indirectly allocated (b) the composition of the cost pools (c) the selection of the allocation base or (d) the composition of the allocation base.

2. A change has not occurred when there is the initial adoption of a cost accounting practice for the first time a cost is incurred or a function is created.

3. A change has not occurred when there is a transfer of contract work from one segment to another provided the cost accounting practices at the segments remain unchanged.

4. When there is a change in cost accounting practice, only affected CAS-covered contracts are subject to price or cost adjustments.

{TAG_FORM_TITLE}