Conformance of the Cost Accounting Standards to Generally Accepted Accounting Principles for CAS 404 Capitalization of Tangible Assets and CAS 411 Accounting for Acquisition Costs of Material

OFFICE OF MANAGEMENT AND BUDGET <SUBAGY>Office of Federal Procurement Policy</SUBAGY> <CFR>48 CFR Part 9904</CFR> <SUBJECT>Conformance of the Cost Accounting Standards to Generally Accepted Accounting Principles for CAS 404 Capitalization of Tangible Assets and CAS 411 Accounting for Acquisition Costs of Material</SUBJECT> <HD SOURCE="HED">AGENCY:</HD> Cost Accounting Standards Board, Office of Federal Procurement Policy, Office of Management and Budget. <HD SOURCE="HED">ACTION:</HD> Advanced notice of proposed rulemaking. <SUM> <HD SOURCE="HED">SUMMARY:</HD> The Office of Federal Procurement Policy (OFPP), Cost Accounting Standards Board (CAS Board or the Board), is releasing this advanced notice of proposed rulemaking (ANPRM) to elicit public comments on proposed changes to the Cost Accounting Standards (CAS) on conformance to Generally Accepted Accounting Principles (GAAP) related to CAS 404, <E T="03">Capitalization of Tangible Assets,</E> and CAS 411, <E T="03">Accounting for Acquisition Costs of Material,</E> to GAAP. This ANPRM follows issuance of a Staff Discussion Paper 85 FR 58399 (September 18, 2020). </SUM> <EFFDATE> <HD SOURCE="HED">DATES:</HD> Comments must be in writing and must be received by March 18, 2025. </EFFDATE> <HD SOURCE="HED">ADDRESSES:</HD> Submit comments to the <E T="03">Federal eRulemaking Portal: https://www.regulations.gov.</E> by searching for “CASB 2020-1”. Select the link “Comment Now” that corresponds with “CASB 2020-1”. Follow the instructions provided on the “Comment Now” screen. Please include your name, company name (if any), and “CASB 2020-1” on your attached document. If your comment cannot be submitted using <E T="03">https://www.regulations.gov,</E> call or email the points of contact in the <E T="02">FOR FURTHER INFORMATION CONTACT</E> section of this document for alternate instructions. Comments received generally will be posted without change to <E T="03">https://www.regulations.gov,</E> including any personal and/or business confidential information provided. Public comments may be submitted as an individual, as an organization, or anonymously (see frequently asked questions at <E T="03">https://www.regulations.gov/faq</E> ). To confirm receipt of your comment(s), please check <E T="03">https://www.regulations.gov,</E> approximately two-to-three days after submission to verify posting. <E T="03">Privacy Act Statement:</E> The CAS Board proposes the rule to elicit public views pursuant to 41 U.S.C. 1502. Submission of comments is voluntary. The information will be used to inform sound decision-making. Please note that all comments received in response to this document will generally be posted or released in their entirety, including any personal and business confidential information provided. Do not include any information you would not like to be made publicly available. Additionally, the OMB System of Records Notice, OMB Public Input System of Records, OMB/INPUT/01, 88 FR 20913 (available at <E T="03">www.federalregister.gov/documents/2023/04/07/2023-07452/privacy-act-of-1974-system-of-records</E> ), includes a list of routine uses associated with the collection of this information. <FURINF> <HD SOURCE="HED">FOR FURTHER INFORMATION CONTACT:</HD> John L. McClung, Manager, Cost Accounting Standards Board (telephone: 202-881-9758; email: <E T="03">john.l.mcclung2@omb.eop.gov</E> ). </FURINF> <SUPLINF> <HD SOURCE="HED">SUPPLEMENTARY INFORMATION:</HD> <HD SOURCE="HD1">I. Background</HD> The Office of Federal Procurement Policy (OFPP), Cost Accounting Standards Board (CAS Board), is releasing this Advanced Notice of Proposed Rulemaking (ANPRM) on the conformance of <E T="03">CAS 404, Capitalization of Tangible Assets, and CAS 411, CAS Accounting for Acquisition Costs of Material,</E> to the Generally Accepted Accounting Principles (GAAP). In accordance with 41 U.S.C. 1502(c), the Board is required to consult with interested persons concerning the advantages, disadvantages, and improvements anticipated in the pricing and administration of Government contracts as a result of the adoption of a proposed Standard prior to the promulgation of any new or revised CAS. On September 18, 2020, the Board published a Staff Discussion Paper (85 FR 58399) to solicit views with respect to the Board's initial assessment of CAS 404 and CAS 411 to conform them, where practicable, to GAAP. Respondents were invited to comment, among other things, on the differences identified between CAS and GAAP, the frequency and magnitude of issues identified with CAS non-compliances, and recommendations on any changes to the Standards to conform them to GAAP. This ANPRM reflects input from the public, as discussed below, as well as research accomplished by the Board in the respective subject areas. The Board used the side-by-side comparison of CAS and GAAP requirements set forth in the Staff Discussion Paper to identify any material differences. Unique CAS requirements were assessed for their necessity in protecting the interests of the Government or if the existing requirements in other CAS standards or requirements in other relevant rules may protect the interests of the Government. <HD SOURCE="HD1">II. CAS 404</HD> <HD SOURCE="HD2">A. Overview</HD> CAS 404 requires contractors, for the purposes of cost measurement, to establish and adhere to policies with respect to capitalization of the acquisition costs of tangible assets. CAS 404 establishes criteria which the contractor's policies and procedures should satisfy. CAS 404 was initially published February 27, 1973 at 38 FR 5318. The preamble for the original publication of CAS 404 acknowledged that: <EXTRACT> Work preliminary to the development of this Standard was initiated as the result of recognition that the general subject of fixed asset accounting has been the source of continuing problems between contractors and the Government concerning equitable determinations of the costs attributable to performance of specific contracts. </EXTRACT> The Board ultimately decided after careful consideration of public comments that this standard would establish the beginning point for fixed assets and focus solely on the “determination of the acquisition costs to be capitalized as opposed to those which are charged against revenues of the current period [as depreciation]”. CAS 404 was modified in 1996 by the addition of CAS 404-50(d) to address issues relating to the treatment of gains or losses attributable to tangible capital assets subsequent to mergers or business combinations by government contractors. This added language requires tangible capital assets of an acquired company to be capitalized by the buyer at the seller's net book value, if the assets generated cost on government contracts in the most recent cost accounting period prior to the business combination; otherwise, the assets, which did not generate cost on government contracts, may be assigned a portion of the purchase price of the acquired entity not to exceed their fair value. With the exception of the requirements added in 1996 by CAS 404-50(d)(1), the principal need for the promulgation of the initial CAS 404 no longer exists. GAAP has been revised significantly with additional content since the original promulgation of CAS 404 in 1974. Furthermore, as explained in greater detail in the response to public comments in subsection b., below, a comparison of CAS 404 with pertinent GAAP content revealed significant overlap and nearly completely equivalent requirements with the noted exception of CAS 404-50(d). For all other requirements in CAS 404, a comparable requirement exists in GAAP, FAR or other CAS Standard that would protect the Government's interests and promote uniformity and consistency. The alignment is so close as to make CAS 404 nearly duplicative of GAAP in all cases except CAS 404-50(d)(1). Where such comparable requirements exist between CAS and GAAP, the CAS 404 requirement can be eliminated. In addition to the CAS 404-50(d) requirements for assets acquired through a business combination, there are two other potential differences between CAS and GAAP that require further consideration: (i) the CAS requirements for a minimum capitalization threshold, and (ii) written statements of accounting policies and practices. As described below in subsection b., the Board has provisionally concluded that reliance on GAAP would materially achieve uniformity and consistency necessary for Government contracting related to these two differences. In summary, the Board has provisionally concluded that CAS 404, with the exception of CAS 404-50(d)(1), has become unnecessary to protect the Government's interests which may be achieved through reliance on GAAP and other CAS Standards. Therefore, the Board is considering a proposed rule that would eliminate CAS 404 and retain the requirements CAS 404-50(d)(1) by relocating them to 9904.418-50 and seeks comment on such action in this ANPRM. This action would be consistent with the Board's guiding principles for conforming CAS to GAAP because it would eliminate CAS content to minimize the burden on contractors while protecting the interests of the Federal Government. Furthermore, the Board's conclusion on CAS 404 would align with the guiding principles to rely on coverage in GAAP when it would materially achieve uniformity and consistency in cost accounting without bias or prejudice to either party, rely on other CAS Standards which may protect the Government's interests, and eliminate CAS coverage no longer necessary. <HD SOURCE="HD2">B. Summary of Public Comments</HD> The Board received four sets of public comments to the SDP. These comments came from industry associations and companies. The Board appreciates the efforts of all parties that submitted comments and found the depth and breadth of the comments to be inf ━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━ Preview showing 10k of 32k characters. Full document text is stored and available for version comparison. ━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━