Cost Accounting Standards Board (CASB) Makes Progress on Conforming CAS to GAAP

The CASB’s final rule rescinds CAS 408 and 411 and most of CAS 404 and 409 to align CAS with GAAP, effective August 7, 2026. For government contractors, the change may reduce duplicative requirements, but it does not eliminate considerations related to disclosure, consistency, or cost impact tied to accounting practice changes.

Highlights

• Final CAS Rule. On July 8, 2026, the Cost Accounting Standards Board published a final rule rescinding CAS 408 and CAS 411 and most provisions of CAS 404 and CAS 409 to conform CAS to GAAP.
• Effective Date. The changes take effect August 7, 2026, giving government contractors a limited time to evaluate affected accounting practices, contract clauses, and compliance procedures.
• Retained Requirements. Certain CAS 404 and CAS 409 provisions are not eliminated. They have been relocated to CAS 405 to preserve specific Government protections related to tangible capital assets.
• Disclosure and Consistency. The rule does not eliminate contractor obligations to disclose and consistently follow cost accounting practices required by CAS or GAAP under CAS 401, CAS 402, and applicable CAS contract clauses.
• Cost Impact Considerations. The CASB does not believe contractors will be required to make changes to their current accounting practices, except for a few minor changes related to accounting for personal absences which the CASB has made exempt from the cost impact process.

On July 8, 2026, the Cost Accounting Standards Board (CASB) published “a final rule wholly rescinding Cost Accounting Standards (CAS) 408 and 411 and rescinding most provisions of CAS 404 and 409 to conform to Generally Accepted Accounting Principles (GAAP).” The content from CAS 404 and 409 that is being retained is being transferred to CAS 405.

CAS 404, Capitalization of Tangible Assets

The CASB found that the CAS 404 requirements, except for CAS 404.50(d)(1) addressing “the treatment of gains or losses attributable to tangible capital assets subsequent to mergers or business combinations,” represented “significant overlap and equivalent requirements” within the current GAAP requirements. Therefore, CAS 404 has been rescinded, and CAS 404.50(d)(1) is being relocated to a new paragraph at CAS 405.50(g).

CAS 408, Accounting for Costs of Compensated Personal Absence

The CASB found that the CAS 408 requirements represented “significant overlap and nearly completely equivalent requirements” within the current GAAP requirements. Therefore, CAS 408 has been rescinded.

CAS 409, Depreciation of Tangible Capital Assets

The CASB found that the CAS 409 requirements represent “comparable requirement[s] exist[ing] in GAAP,” except for:

• CAS 409.50(e)(5) providing “valuable flexibility by allowing the contracting parties to agree on the estimated service life of individual tangible capital assets where the unique purpose for which the equipment was acquired or other special circumstances warrant a shorter estimated service life than the one that would result from the application of other approaches;”
• CAS 409.50(j)(1) ensuring “that gains and losses resulting from the disposition of tangible capital assets are properly measured and assigned consistent with the costs of the associated depreciation charged;” and
• CAS 409.50(j)(4) protecting “the Government against shifting of gains and losses associated with the disposition of tangible capital assets transferred in other than an arms-length transaction that are subsequently disposed of within 12 months.”

Therefore CAS 409 has been rescinded, and CAS 409.50(e)(5), CAS 409.50(j)(1), and CAS 409.50(j(4) are being relocated to a new paragraph at CAS 405.50(g).

CAS 411, Accounting for Acquisition Costs of Materials

The CASB found that the CAS 411 requirements represented “significant overlap and nearly completely equivalent requirements” within the current GAAP requirements. Therefore, CAS 411 has been rescinded.

Public Comments

The CASB received 4 sets of public comments generally agreeing with the CASB's September 11, 2025, notice of proposed rulemaking (90 FR 43994). One commenter believed the CASB “has not gone far enough to conform to GAAP because it proposed to retain” CAS 404-50(d)(1), CAS 409.50(e)(5), CAS 409.50(j)(1), and CAS 409.50(j(4) yet another commenter was concerned the CASB has gone “too far” as the commenter did not “believe rescission of any standard is necessary for conformance to GAAP.” In response, the CASB simply stated they have “considered the factors in 41 U.S.C. 1502(c)(2) and concluded that rescinding” the standards and retaining limited requirements in CAS 405“ will result in improvements in the pricing and administration of contracts subject to CAS.”

Future Disclosure and Cost Impact Expectation

The CASB expects contractors to continue to consistently disclose and follow their cost accounting practices, which will be covered by GAAP rather than a cost accounting standard, after CAS 404, 408, 409, and 411 are rescinded. The CASB states the following:

All contractors, whether subject to full or modified CAS coverage, are subject to CAS 401 and CAS 402 and will continue to be required to consistently follow their disclosed or actual cost accounting practices. Contractors will also continue to be bound by the 9903.201-4 CAS contract clauses, which require disclosure and consistency in cost accounting practices, regardless of whether a specific standard exists. These contract clauses implement the disclosure requirements of 41 U.S.C. 1502(f)(1) and provide for the contractor, not the Government, to bear cost increases that result from changes to the contractor’s cost accounting practices, as required by 41 U.S.C. 1502(f)(2).

The CASB is making it clear that the removal of the cost accounting standards does not change the fact that the contractor must notify the cognizant federal agency official (CFAO) in advance of any accounting practice changes impacting the assignment, measurement, or allocation of cost to its CAS-covered contracts and subcontracts, even if those practices are governed by GAAP and not CAS. We discussed the CASB's apparent expansion of the “disclosure and consistency in cost accounting practices” to all GAAP accounting practices in our March 25, 2026, article, “An Update on the Cost Accounting Standards (CAS) Board’s Shift Toward GAAP.”

The long-awaited conformance of CAS to GAAP has come with what appears to be an expansion of the Government’s ability to recover increased costs in the aggregate from cost accounting practice changes governed by cost accounting standards to all financial accounting practices governed by GAAP. Just my take: But did we really think this was going to be all roses, especially with DCAA taking the lead at the CASB?

Effective Date

The changes to the cost accounting standards will be effective as of August 7, 2026.

Cost Accounting Practice Changes as a Result of the Removal of the Standards

The CASB addressed each standard as follows:

• CAS 404, 409, and 411 – Because the current CAS requirements and the GAAP requirements are already mostly equivalent, the CASB does not expect that the final rule would justify treating a change a contractor makes related to capitalization of the acquisition costs of tangible assets or accounting for acquisition costs of materials as a “required change” within the meaning of CAS 9903.201-6(a). The CASB does not believe any changes will be necessary as GAAP and CAS were already in conformance.
• CAS 408 – The CASB believes the removal of CAS 408 could, in some cases, result in changes in accounting practices, as GAAP allows the assignment of certain costs to earlier cost accounting periods than CAS 408 currently permits. The CASB believes these timing differences will be immaterial and has therefore exempted these changes from the required cost impact process.

What Government Contractors Need to Know

The Government (i.e., DCAA Auditors) is not going to expect contractors to make any changes to their current accounting practices other than a few minor changes related to accounting for the costs of compensated personal absences. So, if you do make any changes, the auditor will want to review them.

Expect DCAA auditors to spend more time reviewing your financial accounting practices. Your financial auditors are very likely to view your compliance with GAAP with a much greater level of materiality than your friendly DCAA auditors will. So, be prepared for when your financial auditors say your accounting practice is close enough for compliance with GAAP and your DCAA auditors say they simply cannot agree that the practice is compliant or immaterial.

We believe that if your financial auditors require you to address an accounting change based on Accounting Standards Codification (ASC) 250:

• It will need to be disclosed to your CFAO with the justified basis for needing the change 60 days in advance of the change or with the proposal requiring the change;
• A change due to changes in GAAP (i.e., the ASC) should be treated as a required change under FAR 52.230-6, allowing for an equitable adjustment to CAS-covered contracts and subcontracts; and
• All other changes to your GAAP practices should be treated as unilateral changes under FAR 52.230-6, which requires a general dollar magnitude (GDM) or detailed cost impact (DCI) to determine whether there were any increased costs to the Government in the aggregate.

Managing CAS and GAAP Related Accounting Practice Changes

Redstone Government Consulting assists government contractors with understanding the Government’s requirements, maintaining an adequate accounting system, and applying compliant CAS cost accounting practices. For contractors with CAS-covered contracts or subcontracts, changes to cost accounting practices or related financial accounting practices can affect disclosure obligations, consistency requirements, cost impact analysis, and auditor review. Our team of experts supports this process through CAS compliance consulting, Disclosure Statement support, accounting system adequacy reviews, pricing impact modeling, and Government audit support. Our team can also assist with reviewing accounting policies and procedures, evaluating indirect rate-structure considerations, and providing training for finance, accounting, contracts, and compliance personnel responsible for managing changes in accounting practice.

Frequently Asked Questions (FAQs)

• What are Cost Accounting Standards? Cost Accounting Standards, often called CAS, are rules that apply to certain government contracts and subcontracts and help ensure costs are measured, assigned, and allocated consistently. They are intended to support consistency cost accounting practices.
• What did the Cost Accounting Standards Board (CASB) change? The Cost Accounting Standards Board issued a final rule rescinding CAS 408 and CAS 411 and most provisions of CAS 404 and CAS 409. The purpose of rescinding the standard was to conform CAS to Generally Accepted Accounting Principles, or GAAP.
• When does the rule take effect? The changes take effect August 7, 2026.
• Does this mean contractors are free to make change to their GAAP accounting practices without the risk of going through the cost impact process? No. Contractors subject to full or modified CAS coverage still must follow CAS 401, CAS 402, and applicable CAS contract clauses. So, changing a GAAP accounting practice will need to be disclosed and the cost impact considered.
• Will contractors need to change their accounting practices because of the rule? The CASB does not expect accounting changes for CAS 404, CAS 409, or CAS 411 will be necessary. CAS 408 may require changes creating limited timing differences for compensated personal absence costs, but the CASB expects those differences to be immaterial and has exempted these changes from the cost impact process.