GAO discussed the following: (1) a brief history of the Cost Accounting Standards (CAS); (2) issues involving CAS 409 and 414; and (3) the desirability of reestablishing a Cost Accounting Standards Board function. In the 1960's a growing concern was expressed about differing cost accounting practices being followed under defense contracts. On the basis of hearings held in 1970, Congress created the Cost Accounting Standards Board. From 1970 to September 30, 1980, when it became inactive, the Board promulgated 19 standards covering cost accounting matters. A CAS monitoring group was established by GAO to carry out its oversight role in this important procurement area. The Department of Defense (DOD) set forth a series of 32 initiatives for improving the acquisition process. The Comptroller General testified about plans to monitor the implementation of the initiatives. At that time, he pointed out that GAO had special concerns about Initiative 5. The stated intent of Initiative 5 is to encourage contractors performing under defense contracts to invest in capital facilities that will enhance productivity. GAO supports the Initiative 5 intent of enhancing productivity, although there is one action item, Action Item 5A, which GAO believes needs further evaluation before it is implemented. Action Item 5a calls for the repeal or amendment of CAS 409 to permit more rapid capital equipment depreciation and to recognize replacement depreciation cost. One additional point which surfaced during a preliminary study of CAS 409 and 414 raises questions concerning the extent to which CAS 409 has required contractors to adopt longer asset lives. Before the amendment or repeal of CAS 409 is made, GAO believes that the combined effect of CAS 409, 414, and DOD profit policy should be thoroughly evaluated to assess their total impact. GAO believes that a body of work exists that is significant enough to warrant the reactivation of the Board.
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