Conceptual Groupings of Cost Accounting Standards

Although the Cost Accouning Standards are grouped into categories, the individual standards within each group have certain similarities, and the groups overlap to some extent. Therefore, one standard can apply to more than one group. The group used here are:

1)      Fundamental cost accounting practices:CAS 401, 402, 405, and 406.

2)      Allocation concepts: CAS 403, 410, 418, and 420.

3)      Fixed asset accounting: CAS 404, 409, 414, and 417.

4)      Compensation of personnel: CAS 408, 412, 413, and 415.

5)      Other standards: CAS 407, 411, and 416.

         a            Fundamental Cost Accounting Practices

The standars in this group are those standards that are fundamental to any adequate cost accounting system used for government contract costing. The standards are so fundamental that the CASB decided that these standards are required for the modified CAS coverage. Two of the standards deal. With consistent use of cost accounting practices in estimating, accumulating, and reporting costs and in classifying costs as direct or indirect cost. The other two standards address the importance and impact of the treatment of unallowable costs in the accounting system and the significance of the fiscal year in the calculatiom of indirect cost rates. The standards in this group provide broad principles for specific function, elements of cost, or cost pools.

        b            Allocation Copcepts

The standards in this group cover the cost accounting treatment of specific pools of cost. The standards establish criteria for accumulating costs within the pools, with particular attention to ensuring the homogeneity of the pooled costs. They also establish acceptable allocation bases or criteria for base selection in accordance with the beneficial or causal relationships between the pool and the cost objective.

         c            Fixed Asset Accounting

The standards that cover fixed asset accounting ddres three issues:

1)      Thresholds for cost capitalization

2)      Depreciation policies that reflect physical use of the asset, and

3)      Cost of money as an element of cost facilities capital.

        d            Compensation of personel

These standards cover the costs of compensation to personel paid in money, paid with the direct compensation paid for work performed on a regular basis. Moreover, they do not cover all types of compensation paid to personal or establish rules under which specific compensation would be treated as a direct or an indirect cost. Rather, the focus is on how to treat the costs in the ccompany’s cost accounting practices.   

        e            Other Standards

The standard in this group cover the definition and cost accounting treatment of individual classes, categories, or elements of cost that do not fit more logivally into any of the previous groupings.

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CHARACTERISTIC OF MANAGEMENT

An analysis of the various definitions of management reveals the following important characteristic

          1.         A Group Activity.

Management is a group activity. No individual can satisfy all his desires by himself. Hence he unites with his fellow beings and work in an rightly called management as a ‘co-operative group’. Management becomes essential wherever, there is an organized group of people working toward a common goel. It makes the people realize the objective of the group. It direct their efforts towards the achievement of these objectives.

          2.         Goal oriented.

According to Theo Haimann, “Effective management is always management by objective”. Haynes and Massie opine that without objectives management would be difficult, if not impossible. The chief aims of management are economis and social. It aims to achieve some definite goals or objective. Group efforts are directed towards the achievement of some predetermined goals. Management is concerned with establishment and accomplishment of these objectives.

          3.         A Factor of Production.

Managament is not an end in itself. It is a means to achieve the group objectives. It is a factor of production that is required to co-ordinate the other factor of production for the accomplishment of predetermined goals, just as land, labour and capital are factors of production and are essential for the production of goods and services.

          4.         Universal in Character.

According to Socrates,”Over whatever an man may preside, he will be a good president if he knows what he needs and is able to provide it whether he has the direction of a chorus, a family, a city or an army.” In the word of Henry Fayol,”Be it a case of commerce, politics,  religion, war in every concern there is management function to be performed.” Management is required in all types of organizations. Wherever there is some human activity, there is management. The basic principles of management. The basic principles of management are universal. These can be applied in all organusation, business, social religious, cultural, sport, educational, politics or military.

          5.         Needed at all Levels of the Organisation.

According to the nature of task and the scope of authority, management is needed at all levels of the organization, e.g., top level, middle level and supervisory level. Like the chief executive the lowest level supervisor has also to perform the significant and irreplaceable function of decision making.

          6.         Distinct Process.

Management is a distinct process performed to determine and accomplish stated objective by the use of human beings and other resources. Different from the activities, techniques and procedures, the proess of management consists of such function as planning, organizing, staffing, directing, co-ordinating, motivating and controlling.

          7.         Social Process.

In the words of brech, “Management is a social process entailing responsibility for the effective and economical planning and the regulation of the operation of an enterprise, in fulfillment of a given purpose or task”. Management cousists in getting things done through other. Dealing with people management direct co-ordinates and regulates the efforts of the human beings in order to achieve the desired results. It is in this sense, management as a social process. It has a social process. It has a social obligation to make optimum use of scarce resources for the benefit of the community as a whole.

          8.         System of Authority.

Authority to accomplish the work form others is implied in the very of management since it is a process of directing men to perform a task. Authority is the power to compel men to work in a certain manner. Management cannot work in the absence of authority since it is a rule making and rule enforcing body. There is a chain of authority and responsibility  among people working at different levels of the organization. There cannot be an efficient management without well defined lines of command or superior sub ordinate relationships at the various level of decision making.

          9.         Dynamic function,

Management has to be performed continuously, in an ever-changing business environment. It is constantly engaged in the moulding of the enterprise. It is also concerned about the alteration of environment it self so as to ensure the success of the enterprise.

        10.        Itangible.

Management is intangible. It can be felt in the form of result and not seen. For example, when we are not able to produce the desired quantity we say it is the result poor management.

        11.        Ar as well as Science.

Management is a scince since its principles are of universal application. Management is an art as the result of management depend upon the personal skill of managers. The art of the manager is essential to make the best use of management is bouth science and art.

        12.        A Profession.

Managament is a profession. It has a systematic and specialized body knowledge consisting of principles, techniques and laws. It can be taught as a separate discipline or subject. With the advent of large scale business, the management is now entrusted in the hand of professional managers.

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Type of CAS Notoce and Contract Clauses

         1.         Solicitatio Notice

Any solicitations for a proposed contrac subject to Cost Accounting Standards will contain a notice prescribed by the CASB. The notice is entitled Cost Accounting Standar Notice and Certification. The notice allows a potential contractor (offeror) to do three things, if they apply to the proposed contract:

·         Certify the status of its Disclousure Statement

·         Elect modified CAS coverage when appropriate

·         Certify whether the proposed contract would require a change in existing cost accounting practices.

         2.         Types of CAS Contract Clauses

There are two type of Cost Accounting Standards clauses for nonexempt contract:  a normal contract clause (called the Cost Accounting Standards clause) and a modified contract clause (clled the Disclosure and Consistency of Cost Accounting Prectices clause). In addition to these clauses that relate to CAS coverage, an additional clause, Administration of Cost Accounting Standard, cover the significant administrative aspects related to CAS during contract performace. EACh is summarized in the following sections.

                                a            Normal CAS Clause (Full Coverage)

Unless a contractor or a contract is exempt from Cost Accounting Standards or is eligible for the modified CAS coverage, a contract clause entitled “Cost Accounting Standard” must be inserted in contracts. In summary form, this contract clause requires a contractor to:

1)      Submit in wiritng, by using the Disclosure Statement, a description of its cost accounting practices.

2)      Apply those disclosed cost accounting practices on all other contracts and subcontracts that contain the CAS clause.

3)      Follow consistently its disclosed cost accouting practices in accumulating and reporting contract performance cost data on all covered contracts.

4)      Comply with all Cost Accounting Standards, including any modification and interpretation , in effect at the time of contract award or, if the contractor submitted cost or pricing data, on the date of final agreement on price.

5)      Comply with all Cost Accounting Standards and modification that become applicable to a prime contract or subcontract after award.

6)      Agree to an equirable adjustment if the contract cost is affected by a change to the contractor’s established cost accounting practices as required by a Cost Accounting practices as required by a Cost Accounting Standard

7)      Negotiate the terms and conditions undr which a proposed change to the contractor ‘s disclosed or established cost accounting practices may be made. (The adoption of the change cannot increase costs paid by the Unites states.

8)      Negotaite an equitable adjustment for any desirable changes in cost accounting practices in which the government and the contractor agree to the change.

9)      Agree to a contract price or cost allowance djustment for contractor’s, or its subcontractor’s failure to comply with any applicable Cost Accounting Standard or to follow the Disclousure Statement, if that failire results in increased cost paid by the government.

10)  Agree that if the parties do not agree that the contractor or its subcontractor are in non compliance, or disagree ove any adjustment, such failure to agree shall be a dispute according to the disputes clause of the contract

11)  Permit authorized representatives of the head of the relavant agency or the Comptroller General to examine and make copies of any record related to compliance with Cost Accounting Standards.

12)  Flow down the substance of the CAS clause-except reference to the disputes clause where appropriate-m to applicable subcontracts, and require the inclusion of the CAS clause in all other nonexempt subcontracts at any tier.

                                b            Modified Contract Clause

As discussed in chapter 3, a modified CAS clause is available to any contractor if certain conditions exist.

The modifified CAS clause substantially reduces the contractor’ obligastions to comply with CASB rules, regulations, and Cost Accounting Standards. Under the modified clause ], the only standards a contarctor must comply with are CA 401 (see chapter 10), CAS 402 (see Chapter 11, CAS 405 (see Chapter 14, and Cas 406 (see Chapter 15). The contractor must stil comply, however, with the Disclosure Statement requirements.

The modified CAS clause is official known as “Disclosure and Consistency of Cost Accounting Prectices.” In summary form, this contract clause requires a contractor to:

1)      Comply with Cost Accounting Standards 401, “Consitency in Estimating, Accumulating and Reporting Costs,” 402, “Consistency in Allocating Cost Incurred for the Sama Purpose,” 405, Accounting for Unallowable Cost,” and 406 “Cost Accounting Period.”

2)      Submit in writing, by using the Disclosure Statement, a description of its cost accounting practices.

3)      Follow consistently its disclosed cost accounting practices on all covered contracts.

4)      Negotiate the terms and condition under which a change, purposed by either the contractor or the government, to the disclosed or the government, to the disclosed or established cost accounting practices may be made.

5)      Negotiate an equitable adjustment for any voluntary changes in cost accounting practices in which the government and the contractor agree to the change.

6)      Agree to a contract price or cost allowance adjustment for the contractor’s, or subcontractor’s, failure to comply with all applicable Cost Accounting Standards or to follow the Disclosure Statement, when such failure results in increased cost paid by government.

7)      Agree that if the parties do not agree that the contractor or its subcontractor ae in noncompliance, or disagree over any adjustment, such failure to agree shall be a dispute within the meaning of the disputes clause of the contract.

8)      Permit authorized representatives of the head of the relavant agency or of the Comptroller General to examine and copy records related to compliance with Cost Accounting Standards.

9)      Flow down the substance of the appropriate CAS clause-except, where appropriate, reference to the dispute clause- to applicable subcontracts and require the inclusion of the appropriate CAS clause in all other nonexempt subcontracts at any tier.

                                 c            CAS Administration Clause

It is inserted into any CAS covered contract regardless of the type of coverage designated. In summary form, the clause requires the contractor to:

1)      Submit a description of any cost accounting practice change, the total potential impact of the change on contract containing a CAS clause, and a general dollar magnitude of the change which identifies the potential shift of cost between CAS covered contracts by contract type and other contractor business activity.

2)      Submit the same information within  60 days (or such other date as may be mutually agree to) after the date of agreement with the initial determination of noncompliance in event of contractor disagreement with the initial finding of noncompliance.

3)      Prepare and submit a cost impact proposal in the form and manner specified by the contracting officer within 60 days (or such other date as may be mutually agreed to) after the date of determination of the adequacy and compliance of a change.

4)      Agree to appropriate contract and subcontract amend ment to reflect adjustment establishing by the cost impact proposal.

5)      Flo down the substance of this clause to applicable subcontracts.

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