Cost Accounting Standards (CAS): When They Apply, Which Ones Matter, and How to Comply

The Cost Accounting Standards (CAS) are a separate, more demanding layer of cost accounting rules that sit on top of the FAR Part 31 cost principles, and whether they apply to a given contractor depends almost entirely on dollar thresholds. Those thresholds are about to move. The CAS Board published a final rule on September 1, 2026, implementing a change directed by Section 1806 of the FY2026 National Defense Authorization Act, and it takes effect October 1, 2026. Contractors who assumed they were, or were not, CAS-covered based on the current thresholds need to re-check that assumption against the numbers that apply after that date.

What’s CAS, and who does it apply to?

The Cost Accounting Standards are a set of numbered rules, administered under 48 CFR Chapter 99 by the CAS Board, that govern how a contractor measures, assigns, and allocates costs to government contracts. They are stricter and more prescriptive than the general FAR Part 31 allowability rules, and unlike FAR 31, they apply only to contractors above specific dollar thresholds, not to every government contractor.

• CAS coverage attaches at the contract level, but its consequences run at the business unit level. Once a business unit has a CAS-covered contract, its disclosed cost accounting practices govern all of its CAS-covered work, not just the one contract that triggered coverage.
• There are three positions a contractor can be in: full coverage (the most demanding, all 19, soon 18, standards apply), modified coverage (a smaller subset applies, principally CAS 401, 402, 405, and 406), or exempt (none apply).

What are the CAS coverage thresholds changing October 2026?

This is the part of CAS that has changed the most in years, and the timing matters: the new thresholds take effect less than a month from this article’s publication date.

Through September 30, 2026 (current rule):

• Full coverage applies to a business unit once it receives a single CAS-covered contract award of $50 million or more in a cost accounting period. Every CAS-covered contract awarded to that business unit in the same period is also fully covered.
• Modified coverage applies to CAS-covered contracts awarded to a business unit that has not crossed the full-coverage threshold, once the business unit has been awarded at least one CAS-covered contract or subcontract of $7.5 million or more, the so-called “trigger” contract.
• Exempt from CAS entirely: contracts and subcontracts under $7.5 million (as long as the business unit is not currently performing another CAS-covered contract at or above that amount), along with the categorical exemptions described below.

Effective October 1, 2026 (CAS Board final rule implementing FY2026 NDAA Section 1806, published September 1, 2026):

• Full coverage and the Disclosure Statement requirement rise from $50 million to $100 million.
• The basic CAS applicability threshold rises from $2.5 million to $35 million, and it replaces the old $7.5 million trigger-contract mechanism outright rather than sitting alongside it. Negotiated contracts and subcontracts of $35 million or less are exempt from CAS.
• The CAS Board’s own estimate is that the higher full-coverage threshold alone relieves more than 200 contractors of the obligation to comply with full CAS.
• The rule also clarifies CAS applicability for indefinite-delivery contracts: a multiple-award IDC is evaluated order by order using each task or delivery order’s ceiling value, while a single-award IDC is evaluated once, at contract award, using the full contract ceiling. That asymmetry means a single-award vehicle can trigger CAS exposure earlier than a multiple-award one, even for a contractor whose individual task orders are modest.

Categorical exemptions that apply regardless of dollar value, before and after October 1: contracts with a small business (as determined under 48 CFR 9903.201-1), sealed bid contracts, firm-fixed-price contracts and subcontracts awarded on the basis of adequate price competition without submission of cost or pricing data, contracts for the acquisition of commercial products or commercial services, and contracts with a foreign government. The October 2026 rule extends these exemptions to apply to a portion of a contract, which matters for a hybrid award that mixes commercial and non-commercial line items.

What are the CAS standards, and which ones matter most?

CAS is made up of individual numbered standards, each covering a specific cost accounting practice. As of today there are 19 substantive standards, numbered 401 through 420 (the number 419 was never issued). The October 2026 rule substantially rescinds CAS 407 (use of standard costs for direct material and direct labor), on the reasoning that most of its requirements duplicate GAAP, and folds its surviving provisions into CAS 418, leaving 18 substantive standards from that date forward. Contractors who already use standard costing do not need to change existing practices on their own initiative; any voluntary change to a standard costing method after the rescission is treated as a unilateral change at the contractor’s expense, the same as any other disclosed practice change.

The standards most likely to affect a small or mid-size contractor are a short list within the full 19 (soon 18):

• CAS 401, consistency in estimating, accumulating, and reporting costs. The cost estimate used to price a proposal has to be built the same way the contractor later accumulates and reports actual costs.
• CAS 402, consistency in allocating costs incurred for the same purpose. A cost type charged as direct labor on one contract cannot be charged as indirect overhead on another without a documented, disclosed basis for the difference.
• CAS 405, accounting for unallowable costs. CAS-covered contractors have to identify unallowable costs and exclude them consistently, which layers on top of the FAR 31.205 requirement described in the guide on unallowable costs.
• CAS 406, cost accounting period. Generally the contractor’s fiscal year, with specific rules for changing it.
• CAS 418, allocation of direct and indirect costs, which is where the indirect rate pool and allocation base choices described in the indirect rate structure guide become a formal disclosed practice rather than an informal accounting choice, and which now also absorbs the surviving CAS 407 requirements.

What’s the Disclosure Statement, and when do I need one?

A CAS Disclosure Statement is a formal written description of a contractor’s cost accounting practices, filed with the government and kept current. There are two versions: DS-1, for commercial organizations, and DS-2, for educational institutions.

• A business unit that receives a CAS-covered contract at or above the Disclosure Statement threshold ($50 million today, $100 million from October 1, 2026) must file one. Some modified-coverage contractors are required to file a shorter disclosure depending on contract terms, even below the full-coverage threshold.
• The Disclosure Statement describes how the contractor identifies direct versus indirect costs, how it structures its indirect cost pools and allocation bases, and how it handles items like unallowable costs and cost accounting period.
• Once filed, the Disclosure Statement has to stay accurate. A change in disclosed practice, adopting a new allocation base, splitting a pool, changing how a cost type is classified, requires advance notice to the contracting officer and a calculation of the cost impact on affected contracts, whether the change increases or decreases the government’s cost.

What happens if I am noncompliant?

A CAS noncompliance finding is broader in consequence than a routine FAR 31 questioned cost, because it applies across every CAS-covered contract affected by the noncompliant practice, not only the contract under audit.

• DCAA identifies a noncompliance by comparing the contractor’s disclosed practices to what its books and records actually show. Common triggers: an undisclosed change to an indirect rate structure, inconsistent treatment of the same cost type across contracts, or a practice that does not match what the Disclosure Statement describes.
• The administrative contracting officer issues a formal notice of noncompliance, giving the contractor an opportunity to respond, correct the practice, or demonstrate that the disclosed practice was in fact being followed.
• If the noncompliance increased costs to the government, the contractor owes a price adjustment, plus interest, computed across every affected contract for every year the noncompliant practice was in effect, not simply a single-year correction.

What should a contractor do about the October 2026 change?

The immediate action depends on where a contractor sits relative to the old and new thresholds.

• Contractors currently CAS-covered because of a contract between $7.5 million and $35 million should confirm, with their contracting officer or a CAS-experienced advisor, whether that coverage lapses for new awards signed on or after October 1, 2026. Existing coverage on contracts already awarded does not automatically disappear; the analysis applies going forward.
• Contractors between $35 million and $50 million in a single CAS-covered award should recheck whether they remain in modified coverage under the new $35 million floor.
• Contractors approaching $50 million in a single award, previously on track for full coverage, should watch for relief under the new $100 million full-coverage threshold.
• Regardless of CAS status, every cost-reimbursement or T&M contractor still needs an adequate accounting system under DFARS 252.242-7006. CAS exemption does not exempt a contractor from FAR Part 31 allowability rules or from system adequacy review.

What should I do next?

The safest approach through this transition is to run the CAS applicability analysis on every open and upcoming proposal against both the current and the incoming thresholds, rather than assuming the October 1 change is someone else’s problem because it sounds like deregulation. A contractor that gets the timing wrong on a contract signed right around the effective date risks either an unnecessary Disclosure Statement filing or an unrecognized CAS obligation.

• DCAA compliant accounting system requirements, the system adequacy rules that apply regardless of CAS status
• DCAA unallowable costs under FAR 31.205, the allowability rules CAS 405 layers additional consistency requirements on top of
• DCAA indirect rate structure, the pool and allocation base choices that become a disclosed practice under CAS 418
• DCAA contract types, how contract type interacts with CAS coverage and audit exposure

This guide is general information, not tax advice for your specific situation. Which points apply, and how, depends on your facts.