OMB Cost Accounting Standards Board Issues Two Final Rules Overhauling CAS Requirements, Effective Oct. 1, 2026

Threshold Increases and IDC Clarifications

The Office of Management and Budget's Cost Accounting Standards Board has issued a final rule raising the monetary thresholds for full CAS coverage and Disclosure Statement requirements from the current $50 million to $100 million. The rule, which affects 48 CFR 9903, takes effect October 1, 2026.

The Board published a notice of proposed rulemaking on March 20, 2026 (91 FR 13559) to solicit views on the proposed increases and related clarifications. The Board received nine sets of public comments in response: five from industry associations, two from individual contractors, one from a consulting firm, and one from an individual. According to the document, all comments strongly supported the qualitative aspects noted in the NPRM, including reduced compliance costs, simplified CAS administration for existing contractors, and reduced barriers to entry for nontraditional contractors, new entrants, and mid-size entities who no longer qualify for a full exemption from CAS as small businesses.

The final rule eliminates the exemption at CAS 9903.202-1(c)(ii), which currently exempts a Disclosure Statement from a segment if, during the most recently completed cost accounting period, the segment's CAS-covered awards are less than 30 percent of total segment sales and less than $10 million. The Board determined that this exemption is no longer necessary given the higher thresholds. Acting on public comments, the Board also revised 9903.202-1(b)(2) to more clearly state that a Disclosure Statement is required only for segments or business units that independently meet the applicable thresholds for full CAS coverage, and removed CAS 9903.202-1(c) in its entirety as no longer necessary in light of that clarification.

The rule further amends 9903.201-2(b) to provide a mechanism for determining eligibility for modified coverage for new solicitations and awards for contractors or subcontractors currently subject to full coverage that would not otherwise be subject to full coverage at the new $100 million threshold — conditioned on the contractor or subcontractor having no unresolved CAS noncompliances. The rule also issues clarifications on the application of CAS thresholds and exemptions to indefinite delivery contracts. The Board's analysis, as detailed in the NPRM, estimated these changes will result in a substantial reduction of burden and lower the barrier to entry with a minimal loss in the total dollars currently subject to full coverage and Disclosure Statement requirements.

Rescission of CAS 407 to Conform with GAAP

In a separate but concurrent final rule, also effective October 1, 2026, the Board is rescinding Cost Accounting Standard 407 — governing the use of standard costs for direct material and direct labor — to conform it with Generally Accepted Accounting Principles. This rule affects 48 CFR 9903 and 48 CFR 9904.

The Board's rationale, as stated in the document, is that despite the difference in general focus between CAS and GAAP, there has been significant convergence over the years as GAAP has evolved to address cost measurement and assignment of costs to accounting periods. The document notes that GAAP now contains codified content in these areas very similar to the requirements in CAS 407, and that the creation of the Financial Accounting Standards Board and its Accounting Standards Codification as the recognized financial accounting and reporting standards for GAAP fosters increased uniformity and consistency. The Board concluded that the Government's interests addressed by the vast majority of CAS 407's content are adequately protected through reliance on GAAP and existing requirements in other CAS standards.

The Board is not discarding all of CAS 407's content. A limited set of requirements — specifically CAS 407-30(a)(7), CAS 407-40(b), CAS 407-50(a)(4)(i) and (ii), CAS 407-50(d)(1) and (2), CAS 407-50(e), and CAS 407-60(b) — address standard costs and related variances at the production unit level not currently covered by GAAP and are being retained. Rather than maintaining CAS 407 as a standard with minimal content, the Board concluded these retained requirements should be moved to CAS 418 — Allocation of Direct and Indirect Costs. One definition is also being transferred to a different location within chapter 99 of title 48 of the Code of Federal Regulations.

The document states that this action complies with applicable requirements of 41 U.S.C. 1502 and furthers the Board's duties under 41 U.S.C. 1501(c), which requires the Board to ensure that cost accounting standards used by Federal contractors rely, to the maximum extent practicable, on commercial standards and accounting practices, and to conform CAS to GAAP where practicable. The underlying NPRM for this action was also published on March 20, 2026 (91 FR 13562).

What to Watch

Both final rules take effect October 1, 2026. Contractors and subcontractors currently subject to full CAS coverage should assess whether they remain subject to full coverage under the new $100 million threshold and whether they meet the condition — no unresolved CAS noncompliances — required to transition to modified coverage. Contractors subject to CAS 407 should note that the standard's requirements will be rescinded and that retained provisions will migrate to CAS 418.

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