251 F.3d 0976 (Fed. Cir. 2001)
GENERAL ELECTRIC COMPANY,  Appellant,v.Lawrence J. Delaney, ACTING SECRETARY OF THE AIR FORCE, Appellee.
00-1401
United States Court of Appeals for the Federal Circuit
DECIDED: June 1, 2001

Appealed from: Armed Services Board of Contract Appeals James C. Caine, Trial Attorney, Commercial Litigation Branch, Civil Division, Department of Justice, of Washington, DC, argued for appellee. With him on the brief were David M. Cohen, Director, and Robert E. Kirschman, Jr., Assistant Director.
Glen D. Nager, Jones, Day, Reavis & Pogue, of Washington, DC, argued for appellant. With him on the brief were Gregory G. Katsas and Jack W. Campbell, IV.
David A. Churchill, McKenna & Cuneo, L.L.P., of Washington, DC for amici curiae Ernst & Young, LLP and Pricewaterhouse Coopers, LLP. With him on the brief were Kevin Condrin Dwyer, of Washington DC, and Kathy C. Weinberg, of Dallas, Texas.
Rand L. Allen, Wiley, Rein, & Fielding, of Washington, DC, for amici curiae AeroSpace Industries Association, et al. With him on the brief were Scott M. McCaleb and Derek A. Yeo.
Before MAYER, Chief Judge, NEWMAN and RADER, Circuit Judges.
MAYER, Chief Judge.


1
General Electric Company (GE) appeals the decision of the Armed Services  Board of Contract Appeals, ASBCA No. 44646 (February 10, 2000), denying  its appeal of a contracting officer's final decision to disallow a  portion of the depreciation charges GE proposed in connection with six  delivery orders for spare parts. Because the board misinterpreted the  Federal Acquisition Regulations (FAR), we reverse.

Background

2
As part of the Peace Onyx Program between the United States and Turkey,  GE entered into a joint venture with three Turkish entities to establish  an affiliated company, Tusas Engine Industries, Inc. (Tusas), to locally  manufacture F-16 aircraft engines to be sold by the United States to  Turkey. In accordance with the joint venture agreement, GE contributed approximately 25 million dollars in depreciable equipment to Tusas. Tusas  recorded the cost of the equipment in both dollars and Turkish lira. It  calculated the recorded cost using the exchange rate from dollars to lira  at the time of the capital contribution.


3
In 1990 and 1991, the United States Air Force and GE entered into six  firm fixed-price contracts for aircraft engine spare parts, which GE  subcontracted to Tusas. The price of the contracts included charges for  Tusas' allowable depreciation. Tusas depreciated the assets in lira,  based on the assets' original lira value recorded on its books. It then  converted the depreciation costs into dollars using the historic exchange  rate from the time of the capital contribution.* GE used  these dollar-based depreciation costs for calculating the Air Force's  contract price.


4
The Air Force contracting officer disallowed the depreciation and  recalculated it based on the current exchange rate for each accounting  period in which Tusas claimed depreciation. Because of the highly  inflationary Turkish economy, this recalculation resulted in GE  recovering less than twenty percent of its historic dollar cost for the  depreciable assets. GE appealed the contracting officer's decision to the  Armed Services Board of Contract Appeals.


5
The board upheld the contracting officer's decision to use current  exchange rates to convert Tusas' depreciation from lira to dollars. It  held that the use of historic exchange rates would violate FAR §§ 31.205-  11(a) and (e), resulting in a prohibited valuation of assets and recovery  of depreciation in excess of book value.

Discussion

6
We will not disturb the factual findings of the board unless they are  fraudulent, arbitrary, capricious, so grossly erroneous as to necessarily  imply bad faith, or unsupported by substantial evidence. 41 U.S.C. §  609(b) (1994); McClure Elec. Constructors, Inc. v. Dalton, 132 F.3d 709,  710 (Fed. Cir. 1997). Although we accord respect to the board's  interpretation of regulations that are within its field of expertise,  federal procurement law, the board's conclusions of law, such as the  meaning of a regulation or statute, are reviewed de novo. Ingalls  Shipbuilding, Inc. v. Dalton, 119 F.3d 972, 975 (Fed. Cir. 1997).


7
FAR § 31.205-11(a) defines depreciation as "a charge to current  operations which distributes the cost of a tangible capital asset, less  estimated residual value, over the estimated useful life of the asset in  a systematic and logical manner." In calculating allowable costs, such as  depreciation, FAR requires consideration of (1) reasonableness, (2)  allocability, (3) standards promulgated by the Cost Accounting Standards  Board, if applicable, and otherwise generally accepted accounting  principles, (4) terms of the contract, and (5) limitations set forth in  Subpart 31.2 of the FAR. FAR § 31.201-2(a).


8
Neither FAR Subpart 31.2 nor the contract address the exchange rates to  be used in converting a foreign affiliate's depreciation costs into  dollars. Relevant cost accounting standards similarly fail to  specifically address the use of exchange rates in this situation. See 48  C.F.R. §§ 9904.404, 9904.409. FAR § 31.201-2(a)(3) directs that where the  FAR and cost accounting standards are silent, generally accepted  accounting principles should be used to determine allowability of costs.  Likewise, cost accounting standards provide that the method of  depreciation used for financial accounting purposes shall be used for  contract costing. Id. § 9904.409-50(f)(1).


9
Standard financial accounting practice recognizes a hierarchy of  generally accepted accounting principles. The highest authorities in the  system of accounting norms are the statements published by the Financial  Accounting Standards Board (FASB). See James R. Adler, Using Accounting  Principles in Litigation, Prac. Law., Apr. 1988, at 43, 45. FASB  Statement of Financial Accounting Standards (FAS) 52, "Foreign Currency  Translation," governs a company's conversion of the depreciation costs of  a foreign affiliate whose local economy is highly inflationary into  dollars.


10
Under FAS 52, calculation of foreign-currency depreciation costs of an  affiliate is a two-step process. First, the functional currency of the  affiliate must be determined. The parent company's reporting currency  must be selected as the foreign affiliate's functional currency if the  affiliate operates in a highly inflationary economy. FAS 52 ¶ 11. A  "highly inflationary" economy experiences cumulative inflation of  approximately 100 percent or more over a three-year period. See id.  During the periods at issue, the Turkish economy met this requirement.  Because GE's reporting currency is the dollar, Tusas' functional currency  is likewise the dollar.


11
The second step is the remeasurement of costs recorded in the local  currency (lira) into the functional currency (dollars). FAS 52, ¶ 10.  The remeasurement process is intended to produce the same result as if  the affiliate's books had been maintained in the functional currency. Id.  To achieve this, FAS 52 directs that historic exchange rates be used. See  Jarnagin, supra ¶ 1201 at 1111, 1113 (Chart 1).


12
The use of historic exchange rates also produces an equitable result.  FAR § 31.201-1(a) specifically provides that in ascertaining what  constitutes a cost, any generally accepted method of determining costs  that is equitable and is consistently applied may be used. FAR § 31.102  further requires that the negotiation of prices in fixed-price contracts  must be "fair and reasonable." The government and the board recognized  that failure to use historic exchange rates would be inequitable for  foreign contractors in highly inflationary economies. Under the board's  reading of the regulations, GE argues that it would recover less than 20  percent of the historic dollar cost of the assets. Because the historic  acquisition cost measures the economic sacrifice, or cost, of depreciable  assets, the use of historic exchange rates is necessary to produce not  only meaningful, but in this case equitable, depreciation costs.


13
Notwithstanding the FAR's direction to apply generally accepted  accounting principles, and therefore FAS 52, the board disallowed it as  violative of FAR § 31.205-11(a)'s prohibition on "valuation" of assets.  Valuation in accounting is the assigning of dollar (or other currency  denominations) amounts to assets. Glenn L. Johnson & James A. Gentry,  Jr., Finney & Miller's Principles of Accounting 284 (8th ed. 1980).  Acquisition cost is the proper valuation of assets and, once established,  the basis of the asset may not be adjusted to reflect current market  prices.


14
The government argues that the use of historic exchange rates effectively  revalues the depreciated assets. If Tusas were to convert its  depreciation costs into dollars using historic exchange rates and, after  submitting its costs to GE, convert depreciation cost back into lira at  the current exchange rate, Tusas would effectively receive an amount of  depreciation that would occur only if the assets had been initially  revalued at a higher amount.


15
As stated above, however, the purpose of depreciation is to allocate the  entire historic cost of an asset. The cost to GE was in dollars, not  lira, and the costs assessed to the Air Force must be converted into  dollars in the context of dollar-based contracts. The selection of an  exchange rate to convert lira into dollars is a process of measuring  costs, not revaluing assets. If the local economy is highly inflationary,  the total dollar depreciation cost calculated using historic exchange  rates will exceed the costs calculated using current exchange rates, but  it will equal the historic acquisition cost of the depreciable assets.  The use of historic exchange rates is independent of the current market  value of the depreciable assets and does not change the value of the  assets. Rather it preserves the original dollar cost of the assets for  purposes of depreciation in dollars. Tusas has not changed the value of  the assets in its general ledger and it calculates the amount of  depreciation in lira based on the historic cost recorded in its Turkish  financial books.


16
The board also disallowed the use of historic exchange rates because they  produce depreciation in excess of book value. FAR § 31.205-11(e)  prohibits depreciation in excess of the book value of an asset. The  government argues that when Tusas converts its depreciation cost from  lira into dollars at the historic exchange rate and later converts  dollars paid by GE to Tusas into lira at the current exchange rate, the  two transactions create a depreciation expense in excess of the recorded  book value of the assets.


17
This is a mischaracterization of the transaction between GE and Tusas.  The use of historic exchange rates only produces total depreciation costs  equal to the original acquisition cost of the assets in dollars. This is  the purpose of depreciation under the FAR. Any conversion back into lira  by the affiliate is not relevant to the specific accounting question of  calculating depreciation. The depreciation claimed was simply a  translation from the book amount in lira into dollars and the  depreciation expense is, therefore, not in excess of the recorded book  value.

Conclusion

18
Accordingly, we reverse the decision of the board.

REVERSED


Notes:


*
  The  historic  rate is the exchange rate in effect on the date the transaction  took place, in this case  the  date  of  the  capital contribution.   In contrast, the current exchange rate is defined as the exchange rate in effect as of the end of each accounting period in which  depreciation is claimed.   See  Bill  D.  Jarnagin, Financial Accounting Standards:  Explanation and Analysis ¶ 1201  at  1111  (CCH)  (18th  ed. 1996).


