An Update on the Cost Accounting Standards (CAS) Board’s Shift Toward GAAP

The Cost Accounting Standards (CAS) Board has been working to eliminate several cost accounting standards and replace them with reliance on GAAP. As of April 2026, five standards are under proposed elimination, including a new March 2026 NPRM for CAS 407. Contractors should be aware that removing these standards does not eliminate cost accounting or consistency obligations.

Highlights

• Five CAS Standards Proposed for Elimination. The CAS Board is proposing to eliminate CAS 404, 407, 408, 409, and 411 in favor of GAAP, with CAS 407 added through a March 20, 2026, NPRM. Certain provisions from each standard will be preserved and relocated to CAS 406 to protect the Government's interests.
• GAAP Becomes the Governing Framework. Rather than maintaining separate government-specific rules for areas such as depreciation, standard costs, and compensated absences, the Board is proposing to rely on GAAP practices that contractors are already required to follow and to disclose.
• CAS 401 Consistency Requirements Remain in Force. Eliminating individual CAS standards does not free contractors to change their accounting practices without consequence. CAS 401 still requires contractors to consistently follow their disclosed cost accounting practices, and changes will continue to trigger cost impact analysis.
• Public Comment Deadline for CAS 407 is April 20, 2026. The NPRM for CAS 407 is open for public comment through April 20, 2026. Contractors and industry stakeholders are encouraged to submit comments through Regulations.gov.
• Modified CAS Contractors Are Also Affected. Even contractors under modified CAS coverage remain subject to CAS 401 and the contract clauses requiring disclosure and consistency, meaning the practical reach of these changes extends broadly across the contractor population.

In June of 2024, we published an article about the Cost Accounting Standards (CAS) Board’s plan to drop CAS 408 and 409 and rely on Generally Accepted Accounting Principles (GAAP). Well, here we are in April of 2026. What progress has the CAS Board made?

What CAS Standards May Go Away?

The CAS Board is considering/proposing the elimination of the following standards:

• CAS 404 Capitalization of tangible assets;
• CAS 407 Use of standard costs for direct material and direct labor;
• CAS 408 Accounting for costs of compensated personal absence;
• CAS 409 Cost accounting standard—depreciation of tangible capital assets; and
• CAS 411 Cost accounting standard—accounting for acquisition costs of material.

Yes, CAS 407 is new to the mix. On March 20, 2026, the CAS Board issued a Notice of Proposed Rulemaking (NPRM) to solicit public comments on dropping CAS 407 and adopting GAAP. Public comments are due by April 20, 2026. We fully support this proposal and suggest you do as well. You can submit comments by clicking this link on Regulations.gov and then clicking the “Comment” button. What we need is for the CAS Board to stop proposing and start issuing final rules.

Update on Current Proposed Changes (CAS 404, 408, 409, and 411)

From the Notice of Proposed Rulemaking (NPRM), Issued by The CAS Board on September 11, 2025

Cost Accounting Standards (CAS) 404:

• Move CAS 404-50(d) to CAS 406-50(g) to retain the limitation on the treatment of stepped-up asset basis as a result of a merger or business combination. Given FAR 31.205-52, Asset valuations resulting from business combinations, which make these costs unallowable, I’m not sure this is necessary.
• Eliminate the remaining requirements of CAS 404 and rely on GAAP.

Cost Accounting Standards (CAS) 408:

• Eliminate the requirements of CAS 408 and rely on GAAP.

Cost Accounting Standards (CAS) 409:

• Eliminate the requirements of CAS 409 except for the requirements below, which will be moved to CAS 406-50(g), and rely on GAAP:
  • CAS 409-50(e)(5) Allowing the Government to agree to a shorter estimated service life where there is a unique purpose or special circumstances;
  • CAS 409-50(j)(1) Ensuring that gains and losses are properly measured and assigned consistently with where the costs of the associated depreciation were charged; and
  • CAS 409-50(j)(4) Protecting the Government against shifting of gains and losses associated with disposition of tangible capital assets transferred in other than an arms-length transaction that are subsequently disposed of within 12 months.

Cost Accounting Standards (CAS) 411:

• Eliminate the requirements of CAS 411 and rely on GAAP.

Update on Current Proposed Changes (CAS 407)

From the Notice of Proposed Rulemaking (NPRM), Issued by The CAS Board on March 20, 2026

Cost Accounting Standards (CAS) 407:

• Move CAS 407-30(a)(7), CAS 407-40(b), CAS 407-50(a)(4)(i) and (ii), CAS 407-50(d)(1) and (2), CAS 407-50(e), and CAS 407-60(b) to CAS 418 to retain the requirements addressing standard costs and related variances at the production unit level that are not covered by GAAP.
• Eliminate the remaining requirements of CAS 407 and rely on GAAP.

What Does This Mean to Contractors with CAS-Covered Contracts?

The way we see the removal of these CAS standards is that while the detailed rules (i.e., requirements) of the standard are going away, they are simply being replaced by GAAP requirements that, should the contractor choose to change for changing circumstances, the Government will still be looking for its check (i.e., increased cost in the aggregate). We point you to the following quote from the NPRM issued on March 20, 2026:

The Board has concluded that, for the vast majority of the requirements in CAS 407, the Government’s interests are adequately protected by relying on disclosed GAAP practices that are consistently followed and subject to notice of changes and cost recovery pursuant to CAS 401 – Consistency in estimating, accumulating, and reporting costs. Specifically, all contractors, whether subject to full or modified CAS coverage, are subject to CAS 401 and will continue to be required to consistently follow their disclosed or actual cost accounting practices. In addition, they will continue to be bound by the 9903.201-4 CAS contract clauses requiring disclosure and consistency in cost accounting practices regardless of whether a specific standard exists. These contract clauses implement the statutory requirements for disclosure of [cost accounting practices by] 41 U.S.C. 1502(f)(1), and protections from payment of increased costs as a result of changes to contractors’ cost accounting practices provided by 41 U.S.C. 1502(f)(2).

The CAS Board appears to be expanding the “disclosure and consistency in cost accounting practices” to all GAAP accounting practices. Think of it this way, if a contractor with any CAS-covered contracts (Yes, even modified CAS) decides to change its inventory costing practice from first-in-first-out to last-in-first-out, the Government is going to consider that a cost accounting practice change and require a cost impact, so much for removing barriers to entry. It would appear they are adding a moat around the castle walls.

Understanding Your Obligations as CAS Standards Evolve

Redstone GCI assists government contractors in understanding how proposed and finalized CAS changes may affect their disclosed cost accounting practices, Disclosure Statements, and overall compliance responsibilities. This includes helping clients assess CAS applicability, review Disclosure Statements for potential updates, evaluate accounting practice changes that may be required, and consider the cost impact implications associated with those changes. As CAS requirements continue to evolve and final rules are issued, Redstone GCI helps government contractors understand their obligations, assess contract impacts, and prepare for compliance with greater clarity and consistency.

Frequently Asked Questions (FAQs)

• What is the CAS Board? The Cost Accounting Standards Board is the federal body responsible for establishing and maintaining cost accounting standards for large government contractors. These standards govern how contractors accumulate and report costs on contracts with the federal government.
• What is the difference between CAS and GAAP? CAS standards are government-specific rules that impose particular cost accounting requirements on contractors with covered contracts, while GAAP is the set of broadly accepted accounting principles used for general financial reporting. The CAS Board is proposing to rely on GAAP where CAS standards have historically imposed additional requirements.
• Which CAS standards are being proposed for elimination? Five standards are currently under consideration: CAS 404 (capitalization of tangible assets), CAS 407 (standard costs for direct material and labor), CAS 408 (compensated personal absence), CAS 409 (depreciation of tangible capital assets), and CAS 411 (acquisition costs of material).
• Does eliminating a CAS standard mean contractors can change their accounting practices freely? No. Even without the specific CAS standard in place, contractors remain bound by CAS 401, which requires consistency in estimating, accumulating, and reporting costs. Any change to a disclosed cost accounting practice can still trigger a formal cost impact analysis and potential cost recovery by the Government.
• Who is affected by these proposed changes? Any contractor with CAS-covered contracts is potentially affected, including those under modified CAS coverage. CAS 401 and the relevant contract clauses apply regardless of whether a specific standard exists, which means the consistency and disclosure obligations extend broadly.
• How can contractors submit input on the CAS 407 proposal? The CAS Board is accepting public comments on the CAS 407 NPRM through April 20, 2026. Comments can be submitted through Regulations.gov by searching for the relevant docket and clicking the Comment button.