Summary of CAS Recissions and Reclassifications
In conjunction with the Government’s ongoing mandate to streamline the Cost Accounting Standards (“CAS”) and conform to Generally Accepted Accounting Principles (“GAAP”), the CAS Board (“the Board”) published July 8, 2026, its long-awaited final rule, effective August 7, 2026, rescinding the following four standards:
- CAS 404 Capitalization of Tangible Assets
- CAS 408 Accounting for Costs of Compensated Personal Absence
- CAS 409 Depreciation of Tangible Capital Assets
- CAS 411 Accounting for Acquisition Costs of Material
The final rule entirely rescinds CAS 408 and 411 and nearly all of CAS 404 and 409. The provisions remaining in CAS 404 [404-50(d)(1)] and CAS 409 [409-50(e)(5), 409-50(j)(1) and 409-50(j)(4)], will be reclassified to CAS 405 Accounting for Unallowable Costs in new paragraph 405-40(g).
The retained provisions of CAS 404 and 409 cited above deal with CAS rules pertaining to i) asset step-up in depreciable basis resulting from mergers or acquisitions, ii) treatment of gains and losses on asset dispositions, and iii) flexibility in asset useful life determination, for which the Board did not believe that the current GAAP requirements would adequately protect the Government’s interests. Because the retained provisions noted above also intersect with cost allowability requirements and the cost principles at Federal Acquisition Regulation (“FAR”) 31.2, the reclassification of these provisions to CAS 405 appears to be the logical transition.
Changes to Cost Accounting Practice
The final rule notes that the Board, considering its review of public comments submitted in response to the September 11, 2025, Notice of Proposed Rulemaking, did not identify any instance that would require a contractor to make a 'change' to a cost accounting practice resulting from the recission of CAS 404, 409 or 411. This is because the CAS accounting requirements essentially mimic that of GAAP. The final rule further prescribes that if a contractor was to make a change to a cost accounting practice related to these three standards, then the 'change' cannot be treated as a 'required change' for which a contractor would potentially be permitted to recover increased costs arising from the change under its CAS-covered contracts.
For clarification to avoid a misunderstanding of the final rule regarding CAS 404, 409 and 411, the Board’s contention cited below does not mean that contractors may make changes to a cost accounting practice and bypass the traditional change process in accordance with FAR Part 30 requirements.
“As noted in the NPRM, the Board did not identify any instance where the recission of [insert CAS 404, 409 or 411] would result in a change to a contractor's disclosed cost accounting practices for government contracts.”
Emphasis not in the original
Rather, the final rule language cited above needs to be read together with the following:
“The Board expects that contractors would continue to follow their existing practices as they are compliant with both CAS and GAAP. As such, the Board does not expect that the rescission of [insert CAS 404, 409 or 411] would justify treating an accounting change a contractor subsequently makes as a “required change” within the meaning of 9903.201-6(b)(2).”
Emphasis not in the original
This means the correct interpretation of the final rule, excluding CAS 408, is if a contractor elects to make a change to a cost accounting practice, e.g., a voluntary or unilateral change, notwithstanding the recission of CAS 404, 409 and 411, then a contractor remains obligated under the CAS rules to comply with the traditional cost impact and disclosure requirements, despite the recission or elimination of the standard.
Regarding CAS 408, the Board determined that in certain instances a change to a cost accounting practice may be required, however, any such change would likely produce an immaterial timing difference. As such, the final rule allows a new exemption from the traditional cost impact process applicable to changes to a cost accounting practice required to address these minor differences between CAS and GAAP. This exemption will be a new paragraph at 48 CFR 9903.201-9(b).
