DCAA Eliminates CAS 404, 408, 409, and 411 Compliance Audits as Oversight Shifts

DCAA has ended planned compliance audits for CAS 404, 408, 409, and 411 following their removal from CAS effective August 7, 2026. While standalone audits for these standards are being discontinued, government contractors should expect continued scrutiny of accounting practice changes, CAS 401 compliance, and disclosure statements through other DCAA audit activity.

In what is a continuance of contract regulation changes, on August 20, 2026, the Defense Contract Audit Agency (DCAA) issued an Memorandum for Directorate Directors 26-CCLD-005 providing audit guidance to auditors regarding the Cost Accounting Standards Board (CASB) final rule. Effective August 7, 2026, CAS 404 (“Capitalization of tangible assets”) , 408 (Accounting for costs of compensated personal absence”), 409 (“Depreciation of tangible capital assets”) and 411 (“ Accounting for acquisition costs of material”) have been removed to conform CAS to Generally Accepted Accounting Principles (GAAP) and no longer apply to any contracts or subcontracts (See our article, Cost Accounting Standards Board (CASB) Makes Progress on Conforming CAS to GAAP).

However, any noncompliances that occurred prior to the effective date must still be resolved. Some of the unique requirements in CAS 404 and 409 have been relocated to CAS 405 Accounting for unallowable costs which will now apply to all contracts under modified CAS coverage.

Shift in Oversight vs. Reduction

While DCAA’s issuance of a timely audit alert will lead to cancellation of in-process audits with no known risk, and planned audits for these four standards, it represents a shift in oversight rather than a reduction. Contractors should expect increased scrutiny during both proposal audits and incurred cost audits, where DCAA will closely monitor for undisclosed changes to cost accounting practices and potential CAS 401 noncompliances.

What DCAA Auditors Should Do

• Risk Based Audit Cancellations - For in process compliance audits of CAS 404, 408, 409, and 411, auditors must cancel the audit if no known risk exists. Audits should only continue if there is risk of noncompliance.
• Removal of Audit Programs – Audit Programs 19404, 19408, 19409, and 19411 are being removed. No new compliance audits will be planned for these four standards.
• Noncompliances in process – Auditors will continue working with Cognizant Federal Agency Official (CFA) or Administrative Contracting Officer (ACO) to resolve any material CAS noncompliances prior to August 7, 2026.
• Forward Pricing Effort – Auditors must scrutinize forward pricing rate and price proposals for variances against previous submissions. Deviations may indicate undisclosed voluntary accounting changes, a CAS 401 (“Consistency in estimating, accumulating and reporting costs”) or Disclosure Statement noncompliance.
• Incurred Cost Audits – Auditors must verify cost and rate calculations comply with current CAS requirements and identify any cost accounting practice changes or CAS 401 and disclosure statement noncompliances.

Takeaways

Contractors with in-process CAS compliance audits for the four standards should immediately schedule a meeting with their DCAA auditor to determine whether the audit should be cancelled. The audit guidance specifically instructs auditors to cancel these audits if no known risk exists. We believe DCAA should cancel low-risk audits, as we believe it is highly unlikely that a DCAA auditor will be willing to document “no known risk” exists. However, if contractors believe the audit is low risk and DCAA will not cancel it, they should work with their Administrative Contracting Officer (ACO) to assist in cancelling the audit. In the interim, contractors should consider pausing efforts to gather requested documentation for any of the four compliance audits until DCAA provides formal confirmation of the audit’s status.

Contractors should ensure cost estimating and accumulation practices are consistent and aligned with their disclosure statements, where required. DCAA and the ACO are still actively working to resolve open, material noncompliances from prior years. If you currently have an open, noncompliance that you consider immaterial tied to any of the four rescinded standards, consider scheduling a joint meeting with DCAA and your ACO to determine if it can be formally closed out.

Maintaining Compliance as DCAA Oversight Shift

Redstone GCI assists government contractors in evaluating how the removal of CAS 404, 408, 409, and 411 affects existing accounting practices, disclosure statements, and open CAS compliance matters. Our team reviews accounting practice changes for consistency with remaining CAS requirements, supports contractors responding to DCAA questions during forward pricing and incurred cost audits, evaluates unresolved noncompliances from periods before August 7, 2026, and provides training and operational support to help accounting and contracts personnel apply the revised requirements consistently.