Cost Accounting Standards Board: Function & Background

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  • 0:03 Cost Accounting…
  • 1:14 A Brief History of the CASB
  • 2:04 Structure of the CASB
  • 2:49 Importance of the CASB
  • 4:10 Lesson Summary
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Instructor: Lori Forrest

Lori has taught college Finance, Operations and Business courses for over five years. She has a master's degree in both Accounting and Project Management.

The Cost Accounting Standards Board develops, delivers, and amends published cost accounting standards as they relate to contracts entered into by the U.S. government. This lesson will discuss their role in the government.

Cost Accounting Standards Board

As consumers who pay for goods and services, we try to make sense of cost information, in particular as it relates to the prices we pay for things. As taxpayers, we should care just as much about how and where our tax dollars are spent. Public and private organizations have an accountability to their shareholders, employees, and investors to manage cost. Federal agencies are accountable to taxpayers for cost management.

How do we as individuals determine what is a reasonable cost? While it might make sense for individuals to all follow rules for managing their personal finances there's no way to manage accountability for individuals. The Cost Accounting Standards Board provides practices and direction for government agencies on how to answer and address cost questions. The goal of these standards is to achieve consistency in cost accounting practices so performance can be evaluated across comparable transactions and contracts. Unlike individuals who are free to manage their personal money as they wish, the federal government is not able to opt out of following the Cost Accounting Standards Board rules as they govern the use of taxpayers' dollars.

A Brief History of the CASB

Established in 1970 as an agency of Congress, the Cost Accounting Standards Board (CASB) was dissolved in 1980 after the board created 19 standards and accompanying rules. However, as with many things, if there's no oversight there will be little follow through. The CASB was reestablished on November 17, 1988, by President Ronald Reagan within the Office of the Federal Procurement Policy (OFPP), under the Office of Management and Budget. The CASB provides rules, regulations, and audit responsibilities as they pertain to Section 26 of the Federal Procurement Policy Act, Public Law 100-679. These standards apply to all contractors and subcontractors who are doing business involving government grants and contracts.

Structure of the CASB

The CASB has five members: the Chairman, who is the Administrator of OFPP and four other members with mandatory cost accounting experience, including two members from the Federal government, one from Department of Defense and one from General Services Administration, a member from a general industry, and a member from the accounting profession. The board structure provides a panel of experts from diverse backgrounds who seek to develop standards in line with current procurement practices, reforms, and laws. The focus of the board is on contracts that would pose significant pricing risk to the government. There are applicability thresholds for contract dollars that are subject to the CASB standards and guidelines for exemptions.

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