Prior Promulgations: The original Disclosure
Statement form (CASB DS-1) was developed and
promulgated in the early 1970s. No revisions to the
document were made until the Board was reestablished in
1990. In 1992, some minor revisions were made. 57 FR
14148, 14159 (April 17, 1992). Subsequently, a project
was initiated to revise and update the Disclosure
Statement (CASB DS-1).
On April 2, 1993, a Staff Discussion Paper
incorporating a revised Disclosure Statement was
distributed to certain interested parties who generally
possessed actual field experience in submitting and
auditing these Statements. On the basis of the
comments received in response to this Staff Discussion
Paper, an Advance Notice of Proposed Rulmaking (ANPRM)
was developed and published in the Federal Register on
April 4, 1994 (59 FR 15695).
The majority of the comments received in response
to the ANPRM were generally supportive of the proposed
approach, but at the same time, numerous revisions were
suggested that were intended to improve and streamline
the document. Many of these suggested revisions were
incorporated in the Notice of Proposed Rulemaking
(NPRM) that was published in the Federal Register on
November 29, 1994 (59 FR 60948).
Public Comments: Nine sets of public comments
were received in response to the NPRM from government
contractors, industry associations and Federal
agencies.
Most commenters acknowledged that the NPRM version
of the DS-1 was a significant improvement as compared
with the earlier versions of the Disclosure Statement.
Nevertheless, numerous additional revisions were
suggested by commenters in order to further simplify
and streamline the DS-1. Of particular concern to
several commenters was the amount and type of
information needed to respond adequately to questions
in Part VII of the Statement.
In general, the Board has tried to be responsive
to the suggestions made by commenters. In particular,
a careful reevaluation of Part VII has been undertaken.
In reevaluating this Part, the instructions have been
clarified to make clear that only relevant cost
accounting practices and applicable identifying data
need be disclosed. Therefore, numeric data
representing accounting estimates is not required to be
submitted. Also, in most sections of Part VII, the
substantive questions have been limited to items that
cover only 80-percent of the relevant cost groupings.
The commenters overall concerns and suggestions
are addressed in greater detail under Section E.,
Public Comments.
The Board and the CASB staff express their
appreciation for the constructive suggestions and
criticisms provided by the commenters with regard to
the content of the revised Disclosure Statement. Many
of the commenters' suggested improvements have been
incorporated into the final rule being promulgated
today.
Benefits: After consideration of the public
comments received, the Board believes that the revised
Disclosure Statement, as set forth in this final rule,
will improve the cost accounting practices followed by
contractors when estimating, accumulating and reporting
costs deemed allocable to Federal contracts. Adequate
disclosure of cost accounting practices is essential in
order to ensure consistency in cost measurement as
costs are first estimated and then accumulated and
reported. A Disclosure Statement that has not been
updated for some two decades clearly cannot adequately
reflect currently prevailing cost accounting practices
and cost elements. Therefore, in order to ensure that
the policies and Standards promulgated by the Board are
implemented in an economical and effective manner, a
revised and updated Disclosure Statement becomes
essential. In addition, the Board has previously
expressed the view that an updated Disclosure Statement
should facilitate interaction between contractors and
Government representatives when dealing with contract
costing matters.
The introduction of the revised statement should
not impose any new burden on contractors as it merely
replaces an existing form which requires periodic
updating of disclosed practices.
To further reduce the possibility of increased
costs, the extended dates for submission of the new
Disclosure Statement are designed to provide an
opportunity to delay submission until such time as
contractors would most likely have to file an updated
disclosure form regardless of whether a new Disclosure
Statement is introduced or not.
Summary of Amendments: The primary purpose of
this revision of the Disclosure Statement is to bring
it up to date and to improve it in light of two
decades of field experience that the government
procurement community has had with this document. The
basic characteristics of the Disclosure Statement have
not been changed. However, a multitude of specific
changes are incorporated in the revised Statement. It
would be impractical to list here all the specific
changes. However, most of these changes can be
summarized as follows:
- The current Disclosure Statement specifies
that Parts I through VII be prepared at the segment or
business unit level, while Part VIII should be prepared
at the corporate or group headquarters level. This
revised Statement provides that although Parts V, VI
and VII still have to be submitted by segments, they
may be completed either at the segment or headquarters
level depending on where the applicable practices or
procedures are established or where the cost is
actually incurred.
- In general, various legal references have
been updated.
- As the original Disclosure Statement was in
essence prepared before any Cost Accounting Standards
were issued, the revised format includes references to
subsequently issued Standards where appropriate. In
this context, some cost accounting practices described
in the original Disclosure Statement may not be in
compliance with the relevant provisions of a Cost
Accounting Standard. The purpose of the Disclosure
Statement is not to elicit noncompliant answers, and
therefore, any references to potentially non-compliant
practices have been eliminated.
- Requests for certain statistical data have
been eliminated as this information is no longer used.
- Certain new topical areas have been added to
the Disclosure Statement. These cover items that have
become important from a cost measurement perspective
over the last two decades. The topical areas include
cost-of-money, post-retirement health benefits and
employee stock ownership plans. Most of these new
topical areas are incorporated in a significantly
revised Part VII.
This final rule is based upon the NPRM published
in the Federal Register on November 29, 1994 (59 FR
60948), wherein public comments were invited. Nine
sets of comments were received from government
contractors, industry associations and Federal
agencies. The more significant comments received, and
the Board's actions taken in response thereto, are
summarized below. Many other comments that were more
of an editorial nature have been incorporated in the
document where appropriate.
Comment: Two commenters suggested that compliant
as well as non-compliant cost accounting practices
should be described in the Disclosure Statement.
Response: The Board agrees that the actual cost
accounting practices being followed must be described.
However, where the Disclosure Statement provides a list
of alternative practices, only compliant alternatives
will be listed. If the contractor's practice is not
one of the listed alternatives, the actual practice
must be described on a continuation sheet. This will
not be tantamount to conceding that the practice is
non-compliant since such a determination can only be
made after appropriate analysis and review.
Comment: Several commenters indicated that
although the NPRM has been significantly improved and
streamlined, the draft still contains too many
questions of a detailed nature that may, in the future,
increase rather than decrease the opportunities for
disputes.
Response: The Board has, once more, consulted
with the respondents to the NPRM and all the concerns
have been subjected to additional review. As a result,
some changes have been made to the version incorporated
in the NPRM that should contribute to further
streamlining and clarification of the final document.
This comment applies in particular to Part VII of the
Disclosure Statement.
Comment: At least two commenters indicated that,
in their opinion the revised document still contains
too many pages.
Response: In the final format there is no
substantial difference in the length of the original
and the final Disclosure Statement.
Comment: One commenter stressed that whenever
possible, existing CAS wording or definitions should be
used.
Response: The Board agrees with this suggestion
and, wherever appropriate, the Disclosure Statement has
accordingly been changed.
Comment: Several contractors indicated that
throughout the document the term "CAS-covered
contracts" rather than "Federal contracts" should be
used.
Response: The Disclosure Statement deals with the
cost accounting practices of an entity such as a
segment or home office and it is presumed that cost
accounting practices are applied consistently to all
the applicable final cost objectives. Although the
dollar amount of CAS-covered contracts received is
crucial in determining whether a Disclosure Statement
has to be filed, once the requirement to file has been
met, the disclosure will cover all of the entity's
policies and practices as they affect cost measurement
and allocation to all contracts. Therefore, a broader
term, such as "Federal contracts", seems preferable to
a narrower term such as "CAS-covered contracts".
Comment: Two commenters suggested a shorter
implementation period than the one proposed in the
NPRM.
Response: While the Board encourages early
adoption of the new form, it does not believe that it
can adequately envision all the circumstances that
might arise necessitating a delay in the introduction
of the new form. It believes that any deadline imposed
for the introduction of the new form should make ample
provision for any unexpected difficulties that may
arise at the implementation stage. Therefore, the
final filing date for existing contractors has not been
changed, although the Board hopes that an earlier
adoption is possible in most cases.
Comment: Several commenters expressed some
criticism of the procedure outlined in General
Instructions that allows parts of contractors'
accounting manuals to be incorporated by reference in
the Disclosure Statement.
Response: The wording in the Instructions has
been changed to make it clear that the procedure in
question is an optional one -- particularly from the
perspective of the contractor.
Comment: Several commenters suggested that the
language be clarified to indicate the appropriate
circumstances in which home offices may be able to
complete Parts V, VI, or VII to be filed by segments
reporting to the home office.
Response: The language in the General
Instructions has been clarified. In particular, it has
been made clear that where the home office establishes
the applicable cost accounting policies and procedures,
it may also complete the relevant Parts of the
Disclosure Statement to be submitted by its subordinate
segments.
Comment: Several commenters offered suggestions
for clarifying the layout and terminology used on the
Cover Sheet.
Response: Certain changes have been made to the
Cover Sheet, in particular to item 0.2, Reporting Unit
Classification, in order to introduce standard CAS
terminology and definitions whenever appropriate.
Comment: Several commenters pointed out that in
Part I, General Information, the wording of several
items could be improved in order to ensure that the
questions are more clearly focused and take into
account current practices.
Response: Some changes have been made to Part I
to reflect the suggestions made by several commenters.
In particular, the question dealing with unallowable
costs has been reformatted so as to reflect the basic
structure of CAS 9904.405, Accounting for Unallowable
Costs.
Comment: A number of comments were received
concerning the formulation of questions in Part II,
Direct Costs, dealing with direct material, direct
labor and other direct costs. Some commenters
suggested that the questions included in this part
might be more appropriate elsewhere, such as in Part
III, Direct vs. Indirect Costs, of the Disclosure
Statement.
Response: The basic characteristic of Part II, as
a section dealing with direct material, direct labor
and other direct costs has been retained. The purpose
here is to obtain information on how certain elements
of cost are treated once it has been determined that
they represent direct costs for government contract
costing purposes. Therefore, items such as the
question dealing with employee travel expenses that are
directly charged to contracts have been retained.
On the other hand, as suggested by several
commenters, the question dealing with
interorganizational transfers has been eliminated
primarily because it requested information about the
cost accounting practices of the transferor and not of
the transferee who is preparing the Disclosure
Statement. It cannot be assumed that such information
is always readily available to the transferee. The
transferee's practices in this area are covered in Part
IV, Indirect Costs.
Comment: A few commenters suggested that Part III
should be drastically recast -- including a suggestion
that instead of long lists of functions, elements of
cost and transactions, the equivalent information
should be described on a continuation sheet.
Response: The existing format has been retained
as it seems to be the most effective way to obtain the
relevant information on whether an item of cost is
being treated as a direct cost, as an indirect cost or
as a sometimes direct/sometimes indirect cost. The
lists of functions, elements of cost and transactions
have been somewhat modified on the basis of comments
received.
Comment: In Part IV, several commenters pointed
out that the subtitles used to describe various methods
of allocating General and Administrative (G&A) expense
did not properly reflect the requirements of CAS
9904.410, Allocation of Business Unit General and
Administrative Expenses to Final Cost Objectives.
Response: The subtitles in question have been
modified to conform more closely to the requirements of
CAS 9904.410.
Comment: A number of commenters were concerned
about the amount of detail required in Part IV dealing
with modified allocations from indirect cost pools
using a modified allocation base or a rate that is
either more or less than the normal "full rate". Some
commenters indicated that too much detail was requested
regarding those modified allocations whereas others
expressed the view that more information should be made
available.
Response: Certain parts of Part IV, in particular
the question dealing with the application of overhead
and G&A rates to specified transactions or costs, have
been restated in an attempt to present a more effective
and balanced data gathering instrument. It should,
once more, be remembered that the aim has been to
provide a vehicle for a contractor to disclose its CAS
compliant cost accounting practices. Therefore, the
Disclosure Statement should not be regarded as a
substitute for an audit check list. It is for this
reason that non-compliant practices have been expressly
excluded from the Disclosure Statement.
Comment: Several commenters suggested changes in
the format in which questions regarding Independent
Research and Development (IR&D) and Bid and Proposal
(B&P) costs were presented in Part IV.
Response: The two questions that previously dealt
separately with IR&D and B&P respectively have been
combined to provide a more compact approach to the
topic. In particular, the new approach, unlike the one
in the NPRM, does not presuppose that every contractor
who incurs B&P expense also has incurred IR&D expense -- a
supposition that does not necessarily hold for
civilian agencies.
Comment: One commenter suggested that the
headings in the question in Part VI, Other Costs and
Credits, dealing with charging and crediting vacation,
holiday and sick pay be rearranged.
Response: The column headings have been changed
to reflect the fact that salaried exempt and non-exempt
employees (as defined by the Fair Labor Standards Act)
are generally treated differently in this area.
Comment: Regarding Part VII, Deferred
Compensation and Insurance Costs, most commenters
representing contractors expressed the view that too
much detailed and possibly superfluous and ambiguous
information was required with respect to the various
pension, post-retirement health, deferred compensation
and insurance plans. One commenter had actually tested
the proposed NPRM requirements by using actual plan
data in completing selected parts of the various
sections in Part VII. The estimated time to complete
these various sections were clearly significant and
possibly burdensome when extrapolated to cover the
whole of Part VII. Even though the data submitted was
not verified on an overall basis, it did provide
valuable insight into the relative amount of time
required to complete the various individual questions.
The data also distinguished between time required on a
"recurring" basis to keep the Disclosure Statement
current, as contrasted with the initial effort of "non-recurring"
time required to prepare the original
submission. The general comments regarding time
required to complete Part VII were frequently
supplemented by specific suggestions regarding
individual sections or questions.
Response: The Board is grateful to those
commenters who spent significant amounts of time to
prepare constructive comments on this part of the
Disclosure Statement. In particular, the Board would
like to express its gratitude to the commenter who
actually completed sections of Part VII and made the
relevant data available to the Board.
As a result of the input received from commenters,
Part VII has been substantially redesigned in order to
make it more "user friendly". When dealing with
pension plans, post-retirement health benefits,
employee group insurance, deferred compensation, and
worker's compensation and property insurance, the
amount of detailed information related to various
aspects of cost measurement has been substantially
reduced. The detailed data is required only for those
plans or policies that account for 80-percent of the
relevant category of costs -- provided data on at least
three plans is disclosed. Only a limited amount of
general plan information is sought for all the other
plans. By excluding the less significant plans from
the more detailed disclosure requirements, it is
anticipated that the paperwork burden will be
significantly eased.
Some commenters also inferred that in certain
instances actual numeric data was requested that would
have to be updated annually. It has been made clear in
the final document that when dealing with such items as
actuarial assumptions, only the basis used to determine
numeric values need be disclosed and not the actual
values themselves. This clarification should ensure
that no regular annual updates of the Disclosure
Statement are prepared and submitted merely to reflect
changes in the relevant numeric values.
Other, more specific changes to the various
sections of Part VII are summarized below:
Pension Plans. The number of General Plan
Information questions has been reduced from nine in the
NPRM to six in the final document.
In the NPRM, the information requested for Defined
Contribution Plans applied to all plans of this type.
In the final version, if there are more than three
plans, this information has to be supplied only for
plans that account for 80-percent of the defined
contribution plan costs.
Defined Benefit Plans. The number of questions
asked in this area has not been changed. However, the
topics covered and the manner of presentation have been
somewhat changed. In particular, it has been made
clear that regarding actuarial assumptions, no
disclosure of actual numeric values is required. Only
the basis for determining these numeric values need be
described.
Post-retirement Benefits (PRBs).. This section has
been rearranged to conform with the pattern established
for pension plans in the previous section. In the
NPRM, the questions posed were applicable to all PRB
plans. In the final rule, questions dealing with
general plan information have been separated from
questions dealing with more specific aspects of PRB
cost determination. The latter group consists of five
questions and they have to be completed only for those
plans that, in the aggregate, account for at least 80-percent of
the total PRB costs. However, if there are
three plans or less, then data on all the plans must be
disclosed.
Employee Group Insurance Programs. Responses to
this section of Part VII of the NPRM indicated that it
was the most time consuming section to complete.
Therefore, some significant changes have been made to
the amount of information to be disclosed. First, if
there are more than three policies or self-insurance
plans, the applicable information should be provided
only for those policies and self-insurance plans that,
in the aggregate, account for at least 80-percent of
the costs of the program for each category of insured
risk. Second, the information previously requested
under three separate questions has been recast as a
single question in a tabular form. Third, a number of
specific questions dealing with treatment of dividends,
earned refunds, and employee contributions have been
dropped as these items are largely covered by the
provision of CAS 9904.416, Accounting for Insurance
Costs. It is anticipated that the time needed to
complete this section of Part VII will be significantly
reduced as a result of the changes listed above.
Deferred Compensation Plans. This section has
been recast to conform to the format used in the
sections dealing with pension plans and PRBs.
Therefore, the first five questions dealing with
general plan information are applicable to all the
plans. Two other questions, of a more substantive
nature, should be completed for all the plans if there
are no more than three plans. If there are more than
three plans, the information should be provided for
those plans that in the aggregate account for at least
80-percent of these deferred compensation costs.
Employee Stock Ownership Plans (ESOPs). Questions
in this section have been reformulated, and, as a
result, the total number of these general plan
information questions has been increased by two as
compared with the NPRM. These questions must be
completed for all ESOPs.
Worker's Compensation Liability and Property
Insurance. This section has been rearranged to conform
to the format used in dealing with employee group
insurance plans. In addition, the term "line of
insurance" has been introduced in an attempt to clarify
the nature of the aggregation of costs for which the
relevant cost data has to be disclosed. In this
context, for the purpose of guidance, "line of
insurance" has the meaning attributed to it in
Generally Accepted Auditing Standards (GAAS) literature
(see AICPA Audit and Accounting Guide, Audits of
Property and Liability Insurance Companies) and
includes groupings such as fire and similar perils,
general liability, marine perils, automobile liability
and property damage, worker's compensation, theft, etc.
If there are more than three policies or self-insurance
plans, the applicable information should be provided
only for those policies and plans that in the aggregate
account for at least 80-percent of the applicable costs
for a line of insurance. Also, two separate questions
have been combined into a single question in a tabular
form.
Comment: Several comments relating to Part VIII,
Corporate or Group Expenses, dealt with the requirement
in the NPRM to "list all active segments and groups
that are material in size reporting to the home ...
office". Suggestions received included deletion of the
words "all", "active", and "that are material in size"
in the above quote from the first question in this
part. At least one commenter suggested that if the
term "material" is used, criteria for materiality
should be developed.
Response: The suggestions regarding deletions
have been accepted by the Board. The restated sentence
reads: "list segments and other intermediate level
home offices reporting to this home office."
The Board believes that this is an area where the
individuals implementing the Standards and other
regulations necessarily must exercise their own
judgment in carrying out their tasks. The objective of
this provision in the Disclosure Statement is to obtain
a listing of segments and other entities to which home
office expenses may be allocated. This allocation is
part of the cost determination process for government
contract costing purposes. Furthermore, this cost
determination process, which includes all the relevant
pronouncements of the Board, is subject to the
materiality provisions of 9903.305. Specific
reiteration of the materiality provision in each
instance is not needed. Therefore, the requirement in
the present instance is to list all the segments or
other entities reporting to the home office that may
have other than immaterial impact on the cost
allocation process from the home office to its
subordinate entities.
Comment: Several suggestions were received to
improve and streamline the main section of Part VIII
that deals with the pooling and allocation of home
office expenses.
Response: Several of the suggestions received
have been adopted. An addition has been made to the
list of allocation base codes used and one question in
the NPRM has been eliminated and its substance combined
with another question.
