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further than we need to go to assure a uniform cost allocation practice.

Whenever we get that criticism, we go back to the drawing board and say, do we really have to go as far as we do, and if an industry association or even a contractor wants to come in and make his argument before the board, we have an open door practice on that. They are allowed to come in, but this is a difficult line to draw as to how detailed do you have to be to accomplish the objective. Even the board members, as I say, from time to time, may have strong disagreement among ourselves as to where that line is, but we have managed to come to a consensus. Mr. BENJAMIN. Let me get back to this gentleman's point.

Your point is that it would be more job-oriented than processoriented people involved in your standards.

What is the percentage of each?
Mr. SCHOENHAUT. I would have to give it to you for the record.
Mr. BENJAMIN. Would you please?

Mr. SCHOENHAUT. We can get it out of the disclosure statement data bank.

Mr. BENJAMIN. Would you get it by number and by amount? Mr. SCHOENHAUT. Yes, sir. [The information follows:]

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Most firms contracting with the Government are job order cost oriented. Listed below are statistics from our disclosure statement data bank which show that over 90% of those companies use a job order cost system. In any event, we carefully design these Standards so that they can be as easily applied to a process cost system as to a job order system.

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* This figure only includes the operating units of Profit-Oriented Companies:

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COST ACCOUNTING STANDARD (CAS) 414

Mr. BENJAMIN. What is your response to criticism concerning the opinion that standard 414 and your ongoing study of the cost of money as an element of the cost of assets under construction go to the question of “imputed costs” as they relate to the determination of profit and not toward effecting intended cost standards?

I will allow you to respond to that for the record.
Mr. STAATS. All right.
[The information follows:]

Two issues are involved in this question. One is the difference between "imputed” costs and some other class of costs. The other issue is the difference between elements of contract cost and elements of profit. We will try to deal with both of these issues.

In common English, the term "impute" is roughly synonymous with "ascribe" or "attribute." Accountants use the term “imputed cost” in two ways. The most common usage is to represent the fraction of a joint or common cost, including overhead, which is attributed to an item in a jointly produced lot. The term is also used to indicate the presence of arbitrary or subjective factors in costs assignments. In this latter usage, the term "imputed cost” may be contrasted with costs which are more rigorously documented. Depreciation might, for example, be looked upon as an "imputed cost" as contrasted with out-of-pocket repair costs; both elements are a part of the identifiable cost related to machinery and equipment. In this context, the cost of money measured under Cost Accounting Standard No. 414 is indeed an “imputed cost." This imputed cost could be contrasted with the interest payments on indebtedness, which would be a more directly measured out-of-pocket cost.

Imputation, in this sense, does not imply that the cost is any less real, but that the technique for measuring it may be less obvious. For this very reason, Cost Accounting Standard No. 414 was necessary; without it, there was no agreement on techniques for measuring this important element of economic cost.

Typical contract price negotiation involves estimation of cost and the provision of an anticipated profit. Before CAS No. 414, the Defense Department's weighted guidelines-used in developing "profit objectives”-included provision for the cost of money, but implicitly. The Department developed a new profit policy while the CASB was developing CAS No. 414; the two went into effect simultaneously. The cost which is now measured explicitly in compliance with CAS No. 414 is not one of the elements provided for in the profit objectives developed under the new weighted guidlines. Contract prices in the aggregate are not expected to be changed by the modification of techniques for dealing with this element. The new approach was developed after extended mutual discussions in DOD and CASB.

The current study of the cost of money as an element of the cost of assets under construction is simply an extension of the concept of imputing interest costs to contractors' investment in assets under construction.

CONSTITUTIONALITY OF BOARD Mr. BENJAMIN. In your opinion could the board survive a legal challenge based on the constitutional argument that they are illsituated in the legislative branch?

Mr. STAATS. We have had this question a number of times, and we think there is a perfectly good answer to it. The argument is that it is an executive branch function under the Constitution. The President is supposed to carry out the laws of the land. But there is no essential difference as I see it between what the legislative branch is doing in this case and what the legislative branch delegated to the GAO way back in 1921, which was to prescribe the accounting principles and standards under which the Federal agencies operate. GAO has been doing this for 60 years.

Mr. BENJAMIN. Have you been challenged on this before in court?

Mr. STAATS. No.
Mr. BENJAMIN. Are you being challenged now in court?
Mr. STAATS. No.

Mr. BENJAMIN. Is there any threat of suit regarding any of your
cost standards?
Mr. STAATS. It has been pure talk as far as I know.
Mr. BENJAMIN. What is the pure talk, what pure talk?

Mr. STAATS. It has been made by one or two university professors and I think maybe one of the trade association people. Mr. BENJAMIN. Recently? Mr. STAATS. No.

Mr. KELLER. There has been nothing recent. Shortly after the Supreme Court case in Buckely vs. Valeo about 2 years ago, there was talk about CASB. I have heard nothing about it for a couple of years.

Mr. STAATS. You see, Mr. Chairman, it comes back essentially to the point that you talked about a while ago. Theoretically Congress could write these standards in legislation if it could find a way to do it itself, you see, and there would be no argument then about constitutionality at all. I don't really think there is much to this, to be frank about it.

FUTURE COST ACCOUNTING STANDARDS Mr. BENJAMIN. Please provide us with the list of any further cost accounting standards that should be developed to achieve the mission given the board by Congress and explain how said standards would satisfy that mission.

Also indicate the projected costs for these proposed standards, and the time limit or the time that would be required to complete these standards.

Mr. STAATS. We will do that. [The information follows:]

A listing of additional Cost Accounting Standards that are in various stages of development is included as Appendix B (pages 10-13) of Mr. Staats' prepared state ment. These are the projects that have been identified as of the beginning of March 1979 to further achieve the mission of the Board. The items included in this listing should bring about increased uniformity among contractors for each subject where little uniformity exists today. Other items listed would upgrade and update previous Standards and regulations issued by the Board.

The projected costs of the projects in process that are listed in Appendix B cannot be estimated with any precise degree of accuracy. It is anticipated that these projects could be completed over the next 2 or 3 years.

OTHER AGENCY INVOLVEMENT Mr. BENJAMIN. For the record, please advise us of all other governmental agencies dealing with negotiated defense contracts and explain why they could not adequately promulgate whatever standards remain.

[The information follows:] No known problems have resulted from the location of the Cost Accounting Standards Board in the legislative branch. Congress' decision to locate the Board in the legislative branch is quite consistent with its decision in the Budget and Accounting Act to place the responsibility in the General Accounting Office-also in

the legislative branch-for promulgating accounting principles and standards applicable to the agencies of the executive branch. I am not aware, therefore, of any persuasive argument for reversing the Congress' decision, even though I recommended initially that the function be placed in the executive branch; however, not in any existing operating agency.

In my opinion, it would be unwise to revert to the pattern which existed prior to 1970 where each agency was allowed to promulgate standards separately. Therefore, should the Congress decide to locate this responsibility in the executive branch, I believe it would be essential that it create a new statutory unit for this purpose, perhaps simply shifting the present Board to the executive branch and providing for a different chairmanship. It is not clear what advantage would accrue from this arrangement except that the Chairman would presumably be appointed specifically for this purpose by the President. Under the present arrangement, the Chairman is appointed by the President as Comptroller General who serves ex officio as Chairman of the CASB.

The alternative which I suggested at the hearing of placing the responsibility in the General Accounting Office would retain the function in the legislative branch and would have the advantage of placing the responsibility in an agency having long expertise in accounting matters.

It would also be consistent with the responsibility presently in the GAO for promulgation of accounting principles and standards applicable to executive branch operations.

CASB PROFESSIONAL STAFF Mr. BENJAMIN. Please provide a list of each person employed by the CASB by grade level, salary and assignment. Provide this information for vacant and new positions. For fiscal year 1979 you requested 37 permanent positions. For fiscal year 1980 you request 35. Explain.

[The information follows:]

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