What Are the Cost Accounting Standards?

If you work in construction and want to score contracts with the government, you may need to follow certain accounting rules. What are the cost accounting standards?

Cost accounting standards (CAS) are guidelines on how to track and allocate costs. These must be followed when working on federal contracts. These rules help ensure contractors are reporting in a uniform manner. This makes it easier to audit both the contractor and the government, which increases transparency for both parties.

Here are the 19 Guidelines:

• CAS 401 – Consistency in Estimating, Accumulating, and Reporting Costs
• CAS 402 – Consistency in Allocating Costs Incurred for the Same Purpose
• CAS 403 – Allocation of Home Office Expenses to Segments
• CAS 404 – Capitalization of Tangible Assets
• CAS 405 – Accounting for Unallowable Costs
• CAS 406 – Cost Accounting Period
• CAS 407 – Use of Standard Costs for Direct Material and Direct Labor
• CAS 408 – Accounting for Compensated Personal Absence
• CAS 409 – Depreciation of Tangible Capital Assets
• CAS 410 – Allocation of Business Unit General and Administrative Expenses to Final Cost Objectives
• CAS 411 – Accounting for Acquisition Costs of Material
• CAS 412 – Composition and Measurement of Pension Cost
• CAS 413 – Adjustment and Allocation of Pension Cost
• CAS 414 – Cost of Money as an Element of the Cost of Facilities Capital
• CAS 415 – Accounting for the Cost of Deferred Compensation
• CAS 416 – Accounting for Insurance Costs.
• CAS 417 – Cost of Money as an Element of the Cost of Capital Assets Under Construction
• CAS 418 – Allocation of Direct and Indirect Costs
• CAS 420 – Accounting for Independent Research and Development Costs and Bid and Proposal Costs

(source: Defense Aquisition University)

You may have noticed that CAS 419 is missing from the list. That code is reserved for some future use.

Consistency in Estimating, Accumulating, and Reporting Costs

By keeping a consistent accounting method, a company is more likely to have accurate records. This makes it easier for them to control their costs, and for auditors to ensure they are keeping their costs reasonable. This is critical because there must be accountability in government spending.

Cost Accounting Standards Board (CASB)

The CAS are set forth by the Cost Accounting Standards Board (CASB).

The CASB is a 5-member board appointed by the White House. It consists of a chairman, two members of the federal government (DOD & GSA), an accountant, and a contractor.

Who Needs to Use CAS?

The Federal Aquisition Regulations (FAR - https://www.acquisition.gov/) require certain contractors & subcontractors to follow the CAS. Depending on the contract, the company may be required to follow the full 19 guidelines, a modified set of guidelines (401, 402, 405, and 406), or be completely exempt. The main determinant is the dollar size of the contract. If it's over $50 million, that requires full CAS adherance. If it's between $7.5 million and $50 million, that only requires partial CAS.

There are several ways that a company may be entirely exempt from following CAS. Here are a few:

• If a contractor is certified as a small business, they are exempt.
• If there was "adequate price competition," meaning multiple companies had the chance to bid.
• If the price is set by law, the contractor is not subject to CAS.
• If the contract is awarded to a foreign government, they aren't required to follow the accounting practices an American company would be.

Contractor Disclosure Statement (DS-1)

The contractore must disclose their accounting procedures in a written form. Here is a link to the DS-1.

What is the difference between CAS and GAAP?

While there are many similarities and overlaps, GAAP is for regular financial accounting, while CAS is intended for job cost accounting.

Full Details

If you'd like to read through pages of red tape, you can view the Cost Accounting Standards manual at DCAA.mil This will show you what an auditor will be looking for.