How Many Cost Accounting Standards Are There?

There are 19 Cost Accounting Standards (CAS) that govern how costs are handled. These standards provide uniform rules for measuring, assigning, and allocating costs to contracts awarded by the United States Government. Their purpose is to ensure consistency and transparency in federal contractors’ cost accounting practices, helping to prevent mischarges and promote fair pricing in government procurement. These standards are important for ensuring responsible use of taxpayer funds.

Understanding Cost Accounting Standards

Cost Accounting Standards (CAS) are a specialized set of regulations established by the U.S. government to standardize cost accounting procedures for companies with federal contracts. The core objective of CAS is to achieve uniformity and consistency in how contractors estimate, accumulate, and report costs under federal contracts. These standards aim to ensure the government pays a fair price for goods and services while protecting taxpayer interests.

The Cost Accounting Standards Board (CASB), an independent body within the Office of Federal Procurement Policy, is responsible for developing and interpreting these standards. While Generally Accepted Accounting Principles (GAAP) provide a broad framework for financial reporting, CAS differs significantly by focusing specifically on allocating costs to government contracts. This distinction means CAS offers prescriptive guidance on cost measurement and allocation, whereas GAAP covers a wider range of financial topics for general purpose financial statements.

Who Must Follow Cost Accounting Standards

Compliance with Cost Accounting Standards is not universal for all government contractors; specific thresholds and contract types determine applicability. CAS generally applies to negotiated federal contracts exceeding $2 million, unless a specific exemption is met. A contract award of $7.5 million or more typically acts as a “trigger” contract, establishing CAS coverage for a contractor. CAS applies to individual contracts, rather than to contractors or agencies as a whole.

There are two primary types of CAS coverage: modified and full. Modified CAS coverage applies when a trigger contract is valued between $7.5 million and $50 million, and the contractor has not accumulated $50 million or more in CAS-covered awards in the preceding cost accounting period. This level of coverage requires adherence to four specific standards: CAS 401, 402, 405, and 406. Full CAS coverage becomes mandatory for a single CAS-covered award of $50 million or more, or if the contractor’s total CAS-covered awards in the preceding accounting period reached at least $50 million. Full coverage requires compliance with all 19 standards and the submission of a Disclosure Statement.

What Cost Accounting Standards Address

The 19 Cost Accounting Standards collectively provide detailed guidance on how various cost elements must be handled for government contract costing. These standards ensure consistency in practices for estimating, accumulating, and reporting costs associated with federal contracts. For example, CAS 401 specifically addresses consistency in estimating, accumulating, and reporting costs, ensuring proposal practices align with actual cost accumulation. CAS 402 mandates consistency in allocating costs incurred for the same purpose, preventing costs from being treated as direct on one contract and indirect on another.

The standards also delve into specific types of costs and their accounting treatment. CAS 403, for instance, provides rules for the allocation of home office expenses. CAS 409 covers depreciation of tangible capital assets, while CAS 405 dictates how unallowable costs must be accounted for and excluded from contract charges. Other standards address the proper accounting period for costs (CAS 406), the allocation of direct and indirect costs (CAS 418), and the treatment of independent research and development costs (CAS 420). Each standard provides specific requirements to promote transparency and ensure costs are properly measured, assigned, and allocated to government contracts.