Breakout Session 901 Steven Shamlian, Manager, PricewaterhouseCoopers April 10, 2006 11:00 – 12:00

2. What You Don’t Know Can Hurt You – Developments in Government Contract Accounting Breakout Session 901 Steven Shamlian, Manager, PricewaterhouseCoopers April 10, 2006 11:00 – 12:00 NCMA World Congress 2006 : Achieving High Performance in Global Business: Leadership, Outsourcing, & Risk Management

3. 2005 Government Contract Accounting Developments • Laws • Regulations • Courts and BCAs • Auditors NCMA World Congress 2006 : Achieving High Performance in Global Business: Leadership, Outsourcing, & Risk Management

4. ATK Thiokol v. U.S. • IRAD • CAS 402 • Parties intent or “Practical Necessity” • Specific contract requirement • Compensation for the cost • Benefits to more than one contract NCMA World Congress 2006 : Achieving High Performance in Global Business: Leadership, Outsourcing, & Risk Management

5. U.S. ex rel. Roberts v. Several Professional Service Firms • Credits • Allocation of credits • Supporting evidence NCMA World Congress 2006 : Achieving High Performance in Global Business: Leadership, Outsourcing, & Risk Management

6. General Motors Corp. v. U.S. • CAS 413 • Limitation of Costs/Funds • DCAA guidance re: Teledyne Inc. v. U.S. • Funding of pension deficit • Normal v. Segment closing NCMA World Congress 2006 : Achieving High Performance in Global Business: Leadership, Outsourcing, & Risk Management

7. AM General LLC, ASBCA, No. 53610 • CAS 418 • Use of a Single Cost Pool for Commercial and Government Work NCMA World Congress 2006 : Achieving High Performance in Global Business: Leadership, Outsourcing, & Risk Management

8. Fluor Hanford, Inc. v. U.S. • 80% cap limits on recovery in FCA whistleblower lawsuit • DOE M&A contract • Prior contractor • CO agreement to reimburse NCMA World Congress 2006 : Achieving High Performance in Global Business: Leadership, Outsourcing, & Risk Management

9. Information Systems & Networks Corp. v. United States • FAR 31.205-41 • Allowability of state income tax for S-Corporation • Requirement to pay • Abatement or reduction • Contracting entity NCMA World Congress 2006 : Achieving High Performance in Global Business: Leadership, Outsourcing, & Risk Management

10. Jacobs Engineering Group Inc. v. United States • Termination for convenience • “…all costs reimbursable under this contract” • Cost sharing provisions • “…all costs reimbursable under this contract” • Parties’ intentions NCMA World Congress 2006 : Achieving High Performance in Global Business: Leadership, Outsourcing, & Risk Management

11. CAS Administration • Cost impact of changes in cost accounting practice • Key terms and usages: • “CFAO” • “Affected CAS-covered contracts” • Fixed-price v. Flexibly priced contracts NCMA World Congress 2006 : Achieving High Performance in Global Business: Leadership, Outsourcing, & Risk Management

12. CAS Administration • The Good • Retroactive changes • Single changes • “in the aggregate” • Gross dollar magnitude impact NCMA World Congress 2006 : Achieving High Performance in Global Business: Leadership, Outsourcing, & Risk Management

13. CAS Administration • The Bad • Cannot combine: • required and unilateral changes • Unilateral changes, non-compliances, unilateral changes and non-compliances • Unless all have increased costs • Remedies for subcontract issues are at the prime contract level • New CAS clause (FAR 52.230-7) NCMA World Congress 2006 : Achieving High Performance in Global Business: Leadership, Outsourcing, & Risk Management

14. CAS Administration • The Ugly • Baseline for calculating cost impacts • Initial price v. current EAC v. actual costs • Closed contracts and fiscal years may have to be included • EACs for T&M contracts NCMA World Congress 2006 : Achieving High Performance in Global Business: Leadership, Outsourcing, & Risk Management

15. CAS Developments • Exemption for contracts executed and performed entirely outside the US • ESOPs • Proposed threshold changes NCMA World Congress 2006 : Achieving High Performance in Global Business: Leadership, Outsourcing, & Risk Management

16. Cost Principle Changes • Accounting for unallowable costs (31.201-6) • Statistical sampling • Unbiased sample • High dollar and high risk transactions • Audit verification • Penalties on unallowable costs NCMA World Congress 2006 : Achieving High Performance in Global Business: Leadership, Outsourcing, & Risk Management

17. Cost Principle Changes • Deferred compensation / PRBs (31.205-6(k) and (o)) • Measured, assigned and allocated per CAS 415 • PRBs must be funded by tax return date • Government receives share of reversion • Lump-sum relocation cost reimbursements • Adequately supported by data on the individual elements • Finding new home • Travel to new location • Temporary lodging NCMA World Congress 2006 : Achieving High Performance in Global Business: Leadership, Outsourcing, & Risk Management

18. Cost Principle Changes • Accounting for unusual events • Unusual events: • Mass disposition of assets • Severance • Catastrophic losses • Restructuring • Unforeseeable circumstances • Terminations • Credits and Reversions NCMA World Congress 2006 : Achieving High Performance in Global Business: Leadership, Outsourcing, & Risk Management

19. Other FAR Changes • Cost or pricing data for noncommercial modifications of commercial items • Other commercial item matters NCMA World Congress 2006 : Achieving High Performance in Global Business: Leadership, Outsourcing, & Risk Management

20. DCAA • DCAA participation in recovery audits • Relocation costs • Iraq reconstruction • Hurricane Katrina • Financial capability • T&M close-outs NCMA World Congress 2006 : Achieving High Performance in Global Business: Leadership, Outsourcing, & Risk Management

21. Various Legislation • Various: • Who gets awards • How much to pay for labor • Required sources of material • Mandatory audits of certain contractors • Other matters • Simplification of procurement procedures NCMA World Congress 2006 : Achieving High Performance in Global Business: Leadership, Outsourcing, & Risk Management

22. Conclusion • Be careful out there! NCMA World Congress 2006 : Achieving High Performance in Global Business: Leadership, Outsourcing, & Risk Management