One of the challenges Government contractors face is ensuring compliance with the Cost Accounting Standards (CAS) mandated by the Cost Accounting Standards Board (CASB) and the Federal Acquisition Regulation (FAR). The Contracting Officer is responsible for determining when CAS applies to a proposed contract and for including the appropriate contractor CAS notifications in the solicitation.
A Disclosure Statement (Form CASB DS-1) is a CAS requirement that describes the contractor’s cost accounting practices and procedures. Compliance with this important requirement is critical to success in the Government contracting arena.
When required by the prime contract, a Disclosure Statement must be submitted to the Government by
- any business unit (as defined in CAS 410-30(a)(2)) that is selected to receive a CAS-covered contract or subcontract estimated to exceed $50 million, including option amounts.
- any company which, together with its business segments (as defined in CAS 410-30(a)(7)), received net CAS-covered awards totaling more than $50 million in its most recent cost accounting period. When a Disclosure Statement is required under this criteria, it must be submitted before award of the first CAS-covered Government contract in the immediately-following cost accounting period. However, if the first covered award is made within 90 days of the start of the cost accounting period, the contractor is not required to file until the end of the 90 days.
- any home office (as defined in CAS 403-30(a)(2)) that allocates costs to one or more disclosing segments performing CAS-covered contracts must submit a Part VIII of the Disclosure Statement.
Also, when required, a separate Disclosure Statement must be submitted for each contractor business segment having more than $750,000 (Truthful Cost or Pricing Data Act (formerly Truth in Negotiation Act (TINA)) threshold) of costs included in the total price of any CAS-covered contract or subcontract, unless:
- The contract or subcontract is exempted by 48 CFR 9903.201-1, CAS Applicability
- In the most recently completed accounting period, the segment’s CAS-covered awards are less than 30% of total segment sales for the period and less than $10 million.
What Does This Mean To You?
If you are awarded a Government prime contract or subcontract under which you will be subject to CAS requirements, you are required to submit a Disclosure Statement to the Contracting Officer to formally document and disclose in writing your cost accounting practices. Disclosure Statements, which include eight sections addressing the various components and aspects of your cost accounting practices, are prepared using a standard Government template. Preparing these detailed documents, especially the first time, can be daunting and often requiring significant time to prepare.
Following receipt of your completed Disclosure Statement, the recognized Administrative Contracting Officer (ACO) will request Government cost accounting auditors to determine the adequacy of the statement. An adequate Disclosure Statement, as prescribed by 48 CFR 9903.202-6, means that the statement is current, accurate, and complete, and appropriately describes your current or prospective cost accounting practices. During the adequacy review, the contractor is usually given the opportunity to revise any identified deficiencies. When your Disclosure Statement is determined to be adequate, a Government compliance review will next determine whether the disclosed practices comply with FAR Part 31, Contract Cost Principles and Procedures, and applicable Cost Accounting Standards.
The ACO makes the final determination of the compliance of your Disclosure Statement. If your Disclosure Statement is found to be non-compliant, the ACO may require you to submit a revised Disclosure Statement or may require adjustments to contract prices or cost allowances. Any future changes to your accounting practices will require that your Disclosure Statement be revised.
What Does CohnReznick Think?
Care should be taken when completing your Disclosure Statement because it will be thoroughly reviewed by the Government for adequacy and compliance. CohnReznick has the expertise to help you prepare an adequate Disclosure Statement. We review, assist with, and prepare dozens of Disclosure Statements for our clients every year.
We also have resources to help you with CAS compliance and other topics. These include:
- CohnReznick GovCon360 (www.govcon360.com): Keeps you up-to-date on the ever-changing regulatory environment that is Government contracting. From reference materials to educational presentations and thought leadership pieces on industry matters, GovCon360 is a valuable resource for the Government contracting professional.
- CohnReznick Insights (www.cohnreznick.com/insights): Provides CohnReznick’s latest insights on business trends, regulatory developments, and economic issues. You can subscribe to receive Insights e-newsletters by email.
- CohnReznick Website (www.cohnreznick.com): In addition to Insights, our website provides extensive information about all aspects of Accounting and Assurance, Tax, and Advisory services.