The Inclusion of Cost Accounting Standards in the Accounting Curriculum (1992)

INTRODUCTION The Cost Accounting Standards Board (CASB) was established in 1970 (with the Comptroller General as its chairman). Its purpose was to promote standards for achieving uniformity and consistency in the accounting practices employed by companies holding government contracts. It was abolished by Congress in 1980 since it was felt that it had served its original purpose. During its ten year life, 18 standards were established with major emphasis on chargeable costs to defense contracts. After the CASB was abolished, the standards remained in existence and were enforced by the Defense Contract Audit Agency (DCAA).(1) In 1988, the CASB was reestablished by Senate Bill S.2215 in the Office of Federal Procurement Policy. It was given exclusive authority to make, promulgate, amend and rescind accounting standards and interpretations thereof for negotiated contracts and subcontracts of more than $500,000.(2) It does not take one long to realize that the defense industry and the government are at odds over chargeable costs. Often the defense contractor interprets the regulations differently or has a lack of knowledge about the requirements. This is an ongoing problem and can be documented on a regular basis. For example, Business Week, in its July 1, 1985 publication, disclosed contractors with more than one billion dollars in prime contract awards for 1984 that were under investigation by the Defense Department. The total contract value was listed at $56.5 billion. The allegation in $54.1 billion of the contracts included cost and/or labor mischarges; this represents 95.8 percent of the contracts under review. Further, on August 9, 1988 the New York Times reported a four year investigation by Pentagon auditors. Of 774 actions which were audited. 365 (47.2 percent) were overpriced by $788.9 million which represented 1.5 percent of the total value of the contracts audited. Usually these rulings are contested: however, approximately one half of the government's claims of defective pricing are sustained. The ongoing government contract investigations leads one to question whether the accounting standards are adequately covered in the accounting curriculum by higher education. The purpose of this study was to determine the extent of coverage of accounting standards in accounting programs. If coverage is minimal or relatively nonexistent, it may be me for the accounting profession to accept some responsibility for the problems that exist and develop academic programs to lay the foundation for coverage of accounting standards in accounting curriculum. METHODOLOGY The methodology employed was two-fold. First, an examination of the current edition of 13 accounting texts and 20 managerial accounting texts was conducted to determine the extent that the accounting standards are covered in current textbooks. This was accomplished by visually reviewing the texts and subjectively quantifying the coverage. Of the 13 texts, three had what was considered complete coverage, i.e., virtually a complete chapter (Shillinglaw, Moriarity & Allen) or appendix coverage (Rayburn). Two mentioned all the standards but gave no detail. Six mentioned the CASB but gave virtually no coverage, and two texts failed to even mention the CASB. A review of 20 managerial texts revealed that 15 had no mention of the CASB and the remaining five mentioned the CASB but offered virtually no coverage of the standards. The second phase involved designing and mailing a questionnaire (see Appendix D) to all schools in Virginia that offered a major in accounting or a concentration (at least 24 hours) in accounting. (Appendix D omitted) There were 25 schools identified as meeting the above requirement. Because of the small mailing it was felt that a very high response rate would be required to preserve the validity of the study. From the initial mailing, eight responses (32 percent) were received. …