Government Contractor ESOP Cost Accounting Rules Finalized expands on the new rules for Accounting for the Costs of ESOPs Sponsored by Government Contractors.
The new rules, which amend Cost Accounting Standard (CAS) 412, "Composition and Measurement of Pension Cost," and CAS 415, "Costs of Deferred Compensation" (66 FR 23961; May 1, 2008), were adopted on May 1 and are effective June 2.
The article notes that the rules clarify cost recognition issues related to government contractor ESOP companies with cost-plus contracts:
Moreover, when the company is a government contractor with cost-plus contracts, certain ESOP costs are reimbursable to the extent there is room in the overhead of a contract. As a result, the costs associated with the ESOP can be reimbursed by the government to the company. The issue of which costs are reimbursable however, was both controversial and ambiguous prior to final rules adopted on May 1.
The article discusses how the actual amount of a dividend and/or contribution to a nonleveraged or leveraged ESOP (both principal and interest) are reimbursable costs and how "reimbursable costs for the applicable cost accounting period will only apply to the stock, cash, or combinations thereof that are awarded and allocated to employee accounts within that accounting period."
It also discusses how the final rules have eliminated the distinction between a pension ESOP and a deferred compensation ESOP for cost accounting purposes.
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