[Federal Register Volume 78, Number 120 (Friday, June 21, 2013)]
[Rules and Regulations]
[Pages 37696-37697]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2013-14619]


-----------------------------------------------------------------------

DEPARTMENT OF DEFENSE

GENERAL SERVICES ADMINISTRATION

NATIONAL AERONAUTICS AND SPACE ADMINISTRATION

48 CFR Part 31

[FAC 2005-67; FAR Case 2011-019; Item X; Docket 2011-0019, Sequence 1]
RIN 9000-AM23


Federal Acquisition Regulation; Updated Postretirement Benefit 
(PRB) References

AGENCY: Department of Defense (DoD), General Services Administration 
(GSA), and National Aeronautics and Space Administration (NASA).

ACTION: Final rule.

-----------------------------------------------------------------------

SUMMARY: DoD, GSA and NASA are issuing a final rule amending the 
Federal Acquisition Regulation (FAR) to remove references to specific 
paragraphs of an accounting standard that were deleted in the Financial 
Accounting Standards Board's (FASB's) Accounting Standards Codification 
(ASC) of Generally Accepted Accounting Principles (GAAP). The 
references no longer exist in the authoritative GAAP (the ASC). This 
final rule replaces the current GAAP references in the FAR with 
explicit criteria that generally replicate the substance of the 
formerly referenced GAAP methodology so that the substance of the FAR 
does not change as a result of this final rule.

DATES: Effective Date: July 22, 2013.

FOR FURTHER INFORMATION CONTACT: Mr. Edward N. Chambers, Procurement 
Analyst, at 202-501-3221 for clarification of content. For information 
pertaining to status or publication schedules, contact the Regulatory 
Secretariat at 202-501-4755. Please cite FAC 2005-67, FAR Case 2011-
019.

SUPPLEMENTARY INFORMATION: 

I. Background

    DoD, GSA, and NASA published a proposed rule in the Federal 
Register at 77 FR 29305 on May 17, 2012, to replace the obsolete 
references to paragraphs 110, 112, and 113 of Financial Accounting 
Standard (FAS) 106 (provisions of GAAP that no longer exist) in FAR 
31.205-6(o)(2)(iii)(A)(1) with explicit criteria that generally 
replicate the GAAP methodology detailed in the deleted paragraphs. This 
revision is intended to allow a general continuation for FAR purposes 
(for PRB costs for Government contract cost accounting) of the now-
obsolete GAAP delayed recognition method for contractors that move from 
a pay-as-you-go method of accounting to an accrual basis of accounting.
    In June of 2009, the FASB announced, in its Statement Number 168, 
that effective for financial statements issued for interim and annual 
periods ending after September 15, 2009, the ASC would become the 
source of authoritative U.S. GAAP recognized by the FASB to be applied 
by nongovernmental entities. The FASB stated that this codification 
supersedes existing references in U.S. GAAP.
    The now-superseded GAAP provisions in FAR 31.205-6(o)(2)(iii)(A)(1) 
referenced the description of ``transition obligation'' in paragraph 
110 of FAS 106 and the ``delayed recognition methodology'' in 
paragraphs 112 and 113, also of FAS 106.
    These references to FAS 106 in the cost principle were added in FAR 
Case 91-42, published in the Federal Register at 56 FR 41738 on August 
22, 1991. At the time, the Civilian Agency Acquisition Council and the 
Defense Acquisition Regulations Council (Councils) decided not to allow 
contractors to claim the entire ``transition obligation'' associated 
with their initial application of FAS 106 as an allowable cost in 
accordance with the ``immediate recognition'' procedure in (the now-
superseded) paragraph 111 of FAS 106. (The transition obligation 
associated with initial application of FAS 106 is referred to hereafter 
as the ``initial application transition obligation.'') Therefore, the 
Councils disallowed costs for the amortization of the initial 
application transition obligation in excess of the amount amortized 
using the delayed recognition method procedure in (the now-superseded) 
paragraphs 112 and 113 of FAS 106.
    As a result of the FASB announcement that the ASC is now the source 
of the authoritative U.S. GAAP, the Councils note that the references 
to paragraphs 111, 112, and 113, respectively, of FAS 106 (for the 
immediate and delayed recognition procedures for the initial 
application transition obligation), are no longer valid because FAS 106 
no longer exists in the authoritative GAAP (the ASC). When the FASB 
recodified FAS 106 into the ASC, paragraphs 111 through 114 were not 
included because public

[[Page 37697]]

companies recognized the transition obligation in the first fiscal 
period beginning after December 15, 1994, or shortly thereafter if 
exempted from the initial effective date. While the existing provision 
at FAR 31.205-6(o)(2)(iii)(A)(1) remains in force because the 
referenced GAAP paragraphs can be found in the historical accounting 
literature, the passage of time raises concerns that the text of these 
paragraphs may become less readily available. The Councils conclude, 
therefore, that explicit criteria that generally replicates the 
substance of the formerly referenced GAAP methodology are needed for 
determining the allowability of the transition obligation, when 
converting from pay-as-you-go accounting for PRBs to an accrual method 
of accounting for the purposes of Government contract cost accounting, 
as they do not intend to change the substance of the FAR.
    The Councils acknowledge that contractors may continue to propose 
(as they have in the past) a change to their Government contract cost 
accounting practice whereby the ``pay-as-you-go'' method is replaced by 
the ``accrual'' method, and this may give rise to a transition 
obligation that is similar in its nature, but not its amount, to the 
initial application transition obligation that arose when (now-
superseded) FAS 106 first became applicable in the early 1990's for 
financial reporting purposes.

II. Discussion and Analysis

    DoD, GSA, and NASA received no comments on the proposed rule and 
are therefore issuing the rule as final with minor changes from the 
proposed rule.

III. Executive Orders 12866 and 13563

    Executive Orders 12866 and 13563 direct agencies to assess all 
costs and benefits of available regulatory alternatives and, if 
regulation is necessary, to select regulatory approaches that maximize 
net benefits (including potential economic, environmental, public 
health and safety effects, distributive impacts, and equity). Executive 
Order 13563 emphasizes the importance of quantifying both costs and 
benefits, of reducing costs, of harmonizing rules, and of promoting 
flexibility. This is not a significant regulatory action and, 
therefore, was not subject to review under Section 6(b) of Executive 
Order 12866, Regulatory Planning and Review, dated September 30, 1993. 
This rule is not a major rule under 5 U.S.C. 804.

IV. Regulatory Flexibility Act

    DoD, GSA, and NASA certify that this final rule will not have a 
significant economic impact on a substantial number of small entities 
within the meaning of the Regulatory Flexibility Act, 5 U.S.C. 601, et 
seq., because the rule only removes references to specific paragraphs 
in an accounting standard that were deleted in the Financial Accounting 
Standards Board's (FASB's) Accounting Standards Codification (ASC) of 
Generally Accepted Accounting Principles (GAAP) and replaces them with 
explicit criteria that generally replicate the substance of the 
formerly referenced GAAP methodology (i.e., the substance of the FAR 
did not change as a result of this final rule). No comments from small 
entities were received in response to the Regulatory Flexibility Act 
request under the proposed rule.

V. Paperwork Reduction Act

    The final rule does not contain any information collection 
requirements that require the approval of the Office of Management and 
Budget under the Paperwork Reduction Act (44 U.S.C. chapter 35).

List of Subject in 48 CFR Part 31

    Government procurement.

    Dated: June 13, 2013.
William Clark,
Acting Director, Office of Governmentwide Acquisition Policy, Office of 
Acquisition Policy, Office of Governmentwide Policy.

    Therefore, DoD, GSA, and NASA amend 48 CFR part 31 as set forth 
below:

PART 31--CONTRACT COST PRINCIPLES AND PROCEDURES

0
1. The authority citation for 48 CFR part 31 continues to read as 
follows:

    Authority:  40 U.S.C. 121(c); 10 U.S.C. chapter 137; and 51 
U.S.C. 20113.


0
2. Amend section 31.205-6 by revising paragraph (o)(2)(iii)(A) to read 
as follows:


31.205-6   Compensation for personal services.

* * * * *
    (o) * * *
    (2) * * *
    (iii) * * *
    (A) Be measured and assigned in accordance with one of the 
following two methods described under paragraphs (o)(2)(iii)(A)(1) or 
(o)(2)(iii)(A)(2) of this subsection:
    (1) Generally accepted accounting principles. However, transitions 
from the pay-as-you-go method to the accrual accounting method must be 
handled according to paragraphs (o)(2)(iii)(A)(1)(i) through (iii) of 
this subsection.
    (i) In the year of transition from the pay-as-you-go method to 
accrual accounting for purposes of Government contract cost accounting, 
the transition obligation shall be the excess of the accumulated PRB 
obligation over the fair value of plan assets determined in accordance 
with paragraph (o)(2)(iii)(E) of this subsection; the fair value must 
be reduced by the prepayment credit as determined in accordance with 
paragraph (o)(2)(iii)(F) of this subsection.
    (ii) PRB cost attributable to the transition obligation assigned to 
the current year that is in excess of the amount assignable to 
accounting periods on the basis of a straight line amortization of the 
transition obligation over the average remaining working lives of 
active employees covered by the PRB plan or a 20-year period, whichever 
period is longer, is unallowable. However, if the plan is comprised of 
inactive participants only, the PRB cost attributable to the transition 
obligation assigned to the current year that is in excess of the amount 
assignable to accounting periods on a straight line amortization of the 
transition obligation over the average future life expectancy of the 
participants is unallowable.
    (iii) For a plan that transitioned from pay-as-you-go to accrual 
accounting for Government contract cost accounting prior to July 22, 
2013, the unallowable amount of PRB cost attributable to the transition 
obligation amortization shall continue to be based on the cost 
principle in effect at the time of the transition until the original 
transition obligation schedule is fully amortized.
* * * * *
[FR Doc. 2013-14619 Filed 6-20-13; 8:45 am]
BILLING CODE 6820-EP-P