The DCAM Chapter 7-1909 provides guidance to auditors in various cost allocation issues:

1. Deferral versus expense method. CAS 406.61 was amended in 1997 to require specific restructuring costs of one restructuring event (say acquisition of Company A) to be treated as a deferred charge and amortized over a period in which the benefits are expected to be accrued but not longer than five years. The restructuring costs of a second restructuring event (say acquisition of Company B) may be expensed. Subsequent guidance issued by the Director of Defense Procurement on May 20, 1997 provided it would be acceptable for ACOs to agree to allow contractors to expense restructuring costs in one period when the government benefits (the impact on government contracts would be favorable if, for example, the mix of government contracts were such that there were more contracts at a later date than in the period the costs were expensed).

2. Direct costs. Direct restructuring costs which benefit a single cost objective should be charged to only that objective. For example, if a contractor’s restructuring activities result in the need to recalibrate special test equipment used on only one contract then the recalibration costs should be charged to that one contract.

3. Indirect costs. For indirect restructuring costs, they should be allocated in accordance with CAS 403, allocating home office costs, if they are incurred at the home office. If incurred at a business segment level where the benefit is for more than one segment, the costs should be assigned to the home office and allocated, again, according to CAS 403. If the costs are incurred at only one segment and benefit only that segment, they should be allocated only to that one segment in accordance with CAS 418.

4. Accounting change. If the contractor does not have an established or disclosed cost accounting practice covering restructuring costs the deferral of such costs is considered an initial adoption of a cost accounting practice and not an accounting change. If a contractor does incur restructuring costs and has a disclosed practice that does not provide for deferring such costs, then it is considered a cost accounting practice by DCAA when the cost is deferred.

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