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Cost Accounting Standards Board

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While efforts are being made to strengthen the private-sector role in setting ac-counting standards, government agencies also continue to increase their regulation of the profession. Various governmental agencies participate in accounting regulation. Some agencies such as the Federal Communications Commission (FCC) and Civil Aeronautics Board (CAB) permit industries within their jurisdiction to follow generally accepted accounting principles in lieu of establishing separate policy; separate policy does exist, however, for industries which come under the jurisdiction of the Interstate Commerce Commission (ICC) and the Public Utilities Commission (PUC). The Internal Revenue Service (IRS) and Cost Accounting Standards Board ministers the tax law, with its many ramifications for financial reporting, and the Federal Trade Commission (FTC) has moved into the arena in requiring line of business disclosures in financial reports. Most of us already know the role of the Securities and Exchange Commission.

Government regulation of accounting has been strengthened in recent years by the creation of the Cost Accounting Standards Board (CASB). The CASB is the creation of Public Law 91-379 (84 Stat. 796) which extends and amends the Defense Production Act of 1950. The CASB mandate under the law is "to promulgate uniform cost accounting standards for use in connection with all defense-related negotiated contracts and subcontracts in excess of $100,000." Further, Public Law 91-379 requires, "defense contracts and subcontractors as a condition of contracting to disclose in writing their cost accounting principles, including methods of distinguishing direct costs and the basis used for allocating indirect costs, and to agree to a contract price adjustment, with interest, for any increased costs caused the government by a contractor's failure to comply with any promulgated standards or to follow consistently his disclosed practices."

Its by-laws provide that the CASB will be composed of the Comptroller General of the United States and four members appointed by him.

Unlike the FASB, the members of the CASB serve on a part-time and largely supervisory basis. The work of the committee vests with a full-time professional staff directed by the executive secretary.

To date the CASB has issued four standards, a disclosure statement, and a variety of regulations, definitions, and related items. As an agent of the Congress, the promulgations of the CASB are published in the Federal Register and become law.

While the CASB's initial authority was limited to defense contracting, David H. Li observes that "the General Services Administration, which has jurisdiction over nondefense contracts entered into by governmental agencies, has incorporated the cost accounting standards into its Federal Procurement Regulations. This voluntary adoption by nondefense agencies renders cost accounting standards applicable to most government contracts and makes the work of the Board that much more important."

The wide labyrinth of federal government contracts, the desire on the part of business to reduce the multiplicity of reports and standards, and the close interplay between cost and financial accounting standards, create the need for close cooperation between the CASB and other federal agencies on the one hand, and with the FASB and other private sector policy groups on the other. Elmer B. Staats has a keen awareness for the delicate environment in which accounting standards are formulated and of the need for continuing articulation among the groups concerned. He noted, in a recent address before the Financial Executives Institute that "coordination with other accounting authorities is perhaps the most topical issue facing the Board." He stressed the need for close cooperation with other federal authorities and then turned his attention to coordination with the FASB in these words: "The Board's coordination with the Financial Accounting Standards Board has, as we all know, been underway only a short time. Increasingly we are being asked: Will these two Boards follow the same paths? Will they be in conflict? Will they issue conflicting standards on the same subject? Should financial accounting, as some believe, provide a point of departure for cost accounting. Or is cost accounting the foundation for financial accounting and reporting?"

The Unheralded Policy-Makers

While we have focused, appropriately, on the role of the principal policy-making bodies, the roots of accounting standards and procedures penetrate the entire fabric of our socioeconomic system. Grass-roots momentum has traditionally had at least as much influence on change as has dictum from above. The investor's desire for more complete and accurate information, the firm's desire to tell its message in its own terms, or the demand of conservationists that business render a better accounting of its use of scarce resources and how they affect the environment-these and many other pressures are the imperatives of policy-making.

Certain interest groups that are affected vitally by accounting standards can now for the first time participate actively in policing the profession. We refer specifically to the Financial Executives Institute, Financial Analysts Federation, National Association of Accountants, and the American Accounting Association. All of these groups have formed liaison committees to work with the FASB, the CASB, or both.

Policing has never been an easy task-for any profession-but accounting has now moved closer to representative and participative rule-making than at any other point in its history.

Generally Accepted Auditing Standards:

General standards

  1. The examination is to be performed by a person or persons having adequate technical training and proficiency as an auditor.

  2. In all matters relating to the assignment, independence in mental attitude is to be maintained by the auditor or auditors.

  3. Due professional care is to be exercised in the performance of the examination and the preparation of the report.

Standards of field work

  1. The work is to be adequately planned and assistants, if any, are to be properly supervised.

  2. There is to be a proper study and evaluation of the existing internal control as a basis for reliance thereon and for the determination of the resultant extent of the tests to which auditing procedures are to be restricted.

  3. Sufficient competent evidential matter is to be obtained through inspection, observation, inquiries and confirmations to afford a reasonable basis for an opinion regarding the financial statements under examination.

Standards of reporting

  1. The report shall state whether the financial statements are presented in accordance with generally accepted principles of accounting.

  2. The report shall state whether such principles have been consistently observed in the current period in relation to the preceding period.

  3. Informative disclosures in the financial statements are to be regarded as reasonably adequate unless otherwise stated in the report.

  4. The report shall either contain an expression of opinion regarding the financial statements, taken as a whole, or an assertion to the effect that an opinion cannot be expressed. When an overall opinion cannot be expressed, the reasons therefore should be stated. In all cases where an auditor's name is associated with financial statements, the report should contain a clear-cut indication of the character of the auditor's examination, if any, and the degree of responsibility he is taking.
In addition to policy statements, the AICPA furnishes broad-based support, including an updated list of guides and technical publications.

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