DCAA Assessed Cost Accounting Standards
Navigating the Defense Contract Audit Agency (DCAA) compliance landscape may require an understanding of Cost Accounting Standards. Congress passed a law in 1970 to establish a Cost Accounting Standards Board (CASB) to address concerns over the lack of control and consistency in Defense contract cost accounting practices. CASB developed standards designed to achieve uniformity and consistency in cost accounting practices, and those standards were incorporated in the Federal Acquisition Regulation (FAR) in 1992. For businesses seeking to maintain or achieve compliance, understanding these standards is not just beneficial—it can be essential.
Current Cost Accounting Standards
The Cost Accounting Standards are periodically revised and there are currently nineteen standards:
401 Consistency in Estimating, Accumulating and Reporting Cost
402 Consistency in Allocating Costs Incurred for the Same Purpose
403 Allocation of Home Office Expenses to Segments
404 Capitalization of Tangible Assets
405 Accounting for Unallowable Costs
406 Cost Accounting Period
407 Use of Standard Costs for Direct Material and Direct Labor
408 Accounting for Costs of Compensated Personal Absence
409 Depreciation of Tangible Capital Assets
410 Allocation of Business Unit General and Administrative Expenses to Final Cost Objectives
411 Accounting for Acquisition Costs of Material
412 Composition and Measurement of Pension Costs
413 Adjustment and Allocation of Pension Cost
414 Cost of Money as an Element of the Cost of Facilities Capital
415 Accounting for the Cost of Deferred Compensation
416 Accounting for Insurance Cost
417 Cost of Money as an Element of the Cost of Capital Assets Under Construction
418 Allocation of Direct and Indirect Costs
420 Accounting for Independent Research and Development Costs and Bid and Proposal Costs (IR&D and B&P)
Exemptions for Smaller Contractors
However, not all companies are required to comply with CAS. Smaller businesses, those under specific size thresholds, may be exempt from certain requirements. This exemption is designed to alleviate the compliance burden on small contractors, allowing them to compete effectively for government contracts without the extensive overhead associated with full CAS compliance. These exemptions recognize the unique challenges faced by smaller entities and aim to support their participation in government contracting. Despite an exemption status, companies may still want to follow CAS in preparation for their growth in the industry that may make these requirements relevant down the road.
Specific Exemptions from CAS
Contracts and Subcontracts with Small Businesses
Contracts awarded to small businesses are generally exempt from CAS requirements. This aims to encourage small businesses to participate in government contracting without being overburdened by compliance costs.
Contracts Under a Certain Dollar Threshold:
Contracts and subcontracts under the threshold of $7.5 million are exempt from CAS. This helps smaller contracts remain viable without the need for extensive accounting systems.
Commercial Item Contracts:
Contracts for the acquisition of commercial items are exempt from CAS requirements. This exemption recognizes that commercial items are typically subject to market competition, which helps ensure fair pricing.
Foreign Governments and International Organizations:
Contracts and subcontracts with foreign governments, their agencies, or international organizations are generally exempt from CAS. This exemption facilitates international cooperation and transactions.
Fixed-Price Contracts:
Fixed-price contracts awarded through sealed bidding or those with adequate price competition are exempt from CAS requirements. These types of contracts are less risky for the government in terms of cost overruns, justifying the exemption.
These exemptions are detailed in the Federal Acquisition Regulation (FAR) Part 30 and related sections, providing a regulatory framework that supports these policies (sources: Acquisition.GOV Part 30, 48 CFR 9903.201-1).
Understanding the Importance of Compliance
DCAA assessed cost accounting standards provide a framework for reported costs, directly affecting how government contracts are managed and executed. Adherence to these standards is crucial because it ensures that the government is charged fairly for contract work, protecting both public funds and contractor interests. Failure to meet these requirements can result in penalties or loss of contracts.
Key Components of Cost Accounting Standards
The CAS covers various aspects of accounting, such as allocation of costs, and consistency in estimating, accumulating and reporting costs. These principles help in maintaining transparency and consistency, making it easier for the government to compare price and performance between different government contractors.
Criteria for a DCAA Compliant Accounting System
Contractors who are exempt from the CAS are still required to comply with other requirements in the FAR such as segregating direct and indirect costs, allocating allowable costs and unallowable costs appropriately, and producing timely and accurate financial reports. For additional details, the Standard Form 1408 provides a compliance checklist to assist companies in evaluating their accounting system audit preparedness.
Features of the Best DCAA Compliant Accounting Systems
The best accounting systems for DCAA compliance, like PROCAS offer features such as automated billing, indirect rate calculations, project status reports, timekeeping approvals and audit trails of changes. The best systems also offer automation to validate data, reduce errors, ensure compliance with DCAA requirements, enhance the reliability of financial data, and integrate with other systems such as banking, credit card processing and HR.
Benefits of Using PROCAS for DCAA Compliance
PROCAS stands out as a leading solution for government contractors seeking a DCAA approved accounting system. With over 25 years of expertise in project accounting for government contractors, PROCAS has a reliable track record of helping contractors establish DCAA compliant accounting systems.
Ensuring Compliance with PROCAS
Choosing the right tools and systems is critical for ensuring DCAA compliance. With PROCAS, contractors have access to a user-friendly, scalable, and efficient accounting system that simplifies the complexities of government contract accounting. The system’s compliance-centered features ensure that contractors can meet DCAA requirements.
