Proposed changes to cost accounting standards: easing the compliance load for federal contractors

ARTICLE | June 25, 2025

Authored by BT&Co.

Contractors who perform government work must comply with the Cost Accounting Standards (CAS), a framework designed to bring consistency and fairness to how contract costs are measured and reported. Now, the Cost Accounting Standards Board (CASB) is proposing updates to two of those standards - CAS 404 (Capitalization of Tangible Assets) and CAS 411 (Accounting for Acquisition Costs of Material). 

This move aligns with a broader effort to bring CAS more in line with generally accepted accounting principles (GAAP). If the changes are adopted, many contractors, particularly those already following GAAP, may have fewer hoops to jump through. 

Let’s explore why the changes are being considered, how they differ from the current rules, and what it could mean for contractors.

Why CAS 404 and 411 exist: a brief retrospective

CAS were originally created in the 1970s to solve a very specific problem: when companies do business with the federal government, how can we be sure they’re measuring and reporting their costs in a consistent, fair, and predictable way? At the time, the standard commercial accounting rules (what we now know as GAAP) didn’t go far enough in certain areas, like how to account for material costs or when to capitalize tangible assets. So, CAS filled those gaps. 

CAS 404 and CAS 411 were designed to make sure contractors followed consistent rules for capitalizing assets and tracking the cost of materials. The goal was to prevent accounting inconsistencies that might distort how costs are allocated to government contracts and, ultimately, how much the government pays.

But GAAP has evolved significantly and now covers many of the same areas that CAS 404 and 411 were designed to address. As a result, contractors often find themselves following two sets of rules that, more often than not, say the same thing in slightly different ways. This redundancy adds complexity without much benefit.

That’s why the CAS Board is proposing to eliminate or scale back these two standards. The idea isn’t to weaken oversight, but to make compliance more efficient by relying on one modern, widely used accounting framework: GAAP. This streamlining could make life easier for contractors without compromising the government’s ability to ensure that costs are reported fairly.

Current proposals and their significance

CAS 404

Under the current proposal, CAS 404 would be mostly eliminated, except for one key rule: when a company acquires another business and inherits its assets, those assets must be valued at net book value, not fair market value, if they were previously used on government contracts. This rule is designed to prevent the government from reimbursing additional depreciation beyond what was originally incurred. 

That safeguard will be relocated to CAS 418, but its intent remains the same: to protect the government from footing the bill twice for the same asset.

CAS 411

CAS 411, which governs how contractors account for material acquisition costs, would be dropped altogether. GAAP already addresses these issues effectively, and most contractors are applying GAAP-compliant inventory and cost practices in their commercial operations.

Notable differences

Capitalization thresholds

One of the most significant changes is the removal of the $5,000 capitalization threshold currently baked into CAS 404. GAAP, by contrast, gives companies more discretion to set thresholds that align with the size and nature of their business.

Under the new approach, contractors would no longer need to stick to the CAS-prescribed cap. Instead, as long as their policy is documented and consistently applied, they can lean on their existing GAAP framework - something many are already doing.

Written policies: still smart, even if not required

The proposed changes would also eliminate the CAS requirement for written statements of accounting policies. But in reality, most contractors already maintain these as part of broader corporate governance or to comply with Sarbanes-Oxley. Even without a CAS mandate, sound internal documentation remains a best practice.

Inventory costing methods

CAS 411 calls out specific approaches like moving average and weighted average methods. GAAP simply refers to the use of “average cost” without being overly prescriptive. Since most contractors already follow standard costing practices that align with GAAP, this change shouldn’t create much disruption.

Still, some challenges ahead

That said, transitioning from a CAS-heavy environment won’t be without its complications. Companies that have built systems and policies specifically around CAS 404 and CAS 411 will need to adapt - likely requiring internal coordination, policy updates, and perhaps a bit of retraining.

What contractors should be doing now

While we wait for the final word, it helps to review your capitalization policies and inventory costing methods.

Proactive planning now can help smooth the path later and avoid surprises during audits or system reviews.