Cost Accounting Standards (CAS) for Government Contractors
Cost Accounting Standards (CAS) are a set of 19 standards issued by the Cost Accounting Standards Board (CASB) that govern how contractors measure, assign, and allocate costs on government contracts. CAS compliance is mandatory for most negotiated contracts above certain dollar thresholds and directly affects your pricing, accounting system design, and audit exposure.
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CAS Overview: The 19 Standards
The Cost Accounting Standards were established to achieve uniformity and consistency in cost accounting practices among government contractors. Unlike Generally Accepted Accounting Principles (GAAP), which provide flexibility in how companies account for costs, CAS prescribes specific requirements for measuring, assigning, and allocating costs to government contracts. Noncompliance can result in contract price adjustments, withheld payments, and contract termination.
The Standards at a Glance
Note that CAS 419 was never issued. The 19 active standards cover everything from how you capitalize assets (CAS 404) to how you allocate pension costs (CAS 412-413). Not every standard applies to every contractor — your coverage level determines which standards you must follow.
Full CAS Coverage vs. Modified CAS Coverage
CAS coverage is triggered by contract dollar thresholds and the type of contract. The level of coverage determines how many of the 19 standards you must comply with and whether you need a formal Disclosure Statement.
Full CAS Coverage
Triggered when a contractor receives a single CAS-covered contract of $50 million or more, or when the contractor's aggregate CAS-covered contract awards in the prior cost accounting period total $50 million or more.
- - Must comply with all 19 CAS standards
- - Must submit a Disclosure Statement (CASB DS-1)
- - Subject to DCAA audit of CAS compliance
- - Changes in cost accounting practices require advance notice
- - Cost impact of noncompliance must be calculated and the government reimbursed
Modified CAS Coverage
Applies to CAS-covered contracts below the $50M full coverage threshold. The contractor must follow four specific standards rather than all 19.
- - CAS 401: Consistency in estimating, accumulating, and reporting costs
- - CAS 402: Consistency in allocating costs for the same purpose
- - CAS 405: Accounting for unallowable costs
- - CAS 406: Cost accounting period
- - No Disclosure Statement required (unless otherwise required by the contract)
CAS Exemptions
Not all government contracts trigger CAS. Common exemptions include: sealed bid contracts (FAR Part 14), contracts under the simplified acquisition threshold ($250K), contracts with small businesses, firm-fixed-price contracts awarded on the basis of adequate price competition without cost or pricing data, and contracts for commercial items. Most small and mid-size contractors operate under CAS exemptions until they win larger negotiated contracts.
Key Standards You Must Know
CAS 401 — Consistency in Estimating, Accumulating, and Reporting Costs
The cornerstone of CAS. This standard requires that your cost estimates in proposals match the way you actually accumulate and report costs. If you estimate direct labor at $50/hour in your proposal, your accounting system must track direct labor at $50/hour during performance. Inconsistencies between estimated and actual cost accounting practices are among the most common DCAA audit findings.
Applies to: All CAS-covered contracts (both full and modified coverage).
CAS 402 — Consistency in Allocating Costs Incurred for the Same Purpose
CAS 402 prevents contractors from treating the same type of cost as direct on one contract and indirect on another — a practice called "cherry-picking." For example, if you charge travel as a direct cost on Contract A, you must charge travel as a direct cost on all similar contracts. The only exception is if the circumstances differ in a way that justifies different treatment (and you can document the rationale).
Applies to: All CAS-covered contracts (both full and modified coverage).
CAS 405 — Accounting for Unallowable Costs
Unallowable costs are expenses that cannot be charged to government contracts, as defined in FAR Part 31. CAS 405 requires contractors to identify unallowable costs, segregate them in the accounting system, and exclude them from any billing, claim, or proposal to the government. Common unallowable costs include entertainment, alcoholic beverages, lobbying, charitable contributions, and fines/penalties.
Applies to: All CAS-covered contracts (both full and modified coverage). DCAA specifically targets unallowable cost compliance in incurred cost audits.
Disclosure Statement Requirements
The CAS Board Disclosure Statement (CASB DS-1 or DS-2 for educational institutions) is a formal document that describes your cost accounting practices in detail. It covers how you define direct vs. indirect costs, how you structure your indirect rate pools, how you allocate costs to final cost objectives, and your practices for depreciation, leave, pensions, and other specific cost elements.
When a Disclosure Statement Is Required
- - Full CAS coverage: always required
- - Modified CAS coverage: not required unless the contractor received $50M+ in net CAS-covered awards in the previous period
- - The Disclosure Statement must be submitted to the cognizant federal agency official (CFAO) and the cognizant auditor (usually DCAA)
- - Changes to disclosed practices must be reported and may require a cost impact proposal
Critical Warning
Operating inconsistently with your Disclosure Statement is a CAS violation — even if the inconsistent practice would result in lower costs to the government. If you need to change a practice, file an amendment to your Disclosure Statement before implementing the change, calculate the cost impact, and negotiate with the CFAO. Retroactive changes are problematic and frequently result in DCAA audit findings.
Common CAS Compliance Issues
CAS noncompliance is one of the most expensive mistakes a government contractor can make. Violations can result in contract price adjustments (always in the government's favor), payment withholdings, and — in extreme cases — False Claims Act liability. Here are the issues DCAA most frequently identifies:
- 1. Inconsistent cost treatment — charging the same type of cost as direct on some contracts and indirect on others without documented justification (CAS 402 violation)
- 2. Failing to segregate unallowable costs — including entertainment, alcohol, lobbying, or other FAR 31.205-prohibited costs in indirect rate pools (CAS 405 violation)
- 3. Estimate-to-actual inconsistency — proposing costs using one methodology and recording them using a different methodology (CAS 401 violation)
- 4. Undisclosed changes in accounting practices — modifying how costs are allocated without updating the Disclosure Statement
- 5. Improper G&A allocation base — using an allocation base that does not equitably distribute G&A costs to all final cost objectives (CAS 410 violation)
Prevention is far cheaper than remediation. Invest in a CAS-compliant accounting system, train your finance team on the applicable standards, and conduct internal audits annually before DCAA arrives. Many mid-size contractors use specialized government contract accounting software (Deltek Costpoint, Unanet, Procas) that has built-in CAS compliance controls.