Cost Accounting Standards: Definition & Importance

What is CAS (Cost Accounting Standards)?

Cost Accounting Standards (CAS) are financial rules and guidelines set by the Cost Accounting Standards Board (CASB) that govern the cost accounting practices of government contractors.

Government contractors are businesses or organizations that provide goods or services to the government through a contract. These contracts may be awarded through a competitive bidding process or direct negotiations with the government.

The cost accounting standards are designed to ensure that contracts awarded maintain reliable, consistent, transparent, and disclosed practices of accounts so that the government receives the best value for its procurement dollar.

Government contractors must determine if their contract is subject to Cost Accounting Standards or qualifies for an exemption. It’s important to review these standards to avoid unintentional violations of CAS-covered contract terms.

CASB is an independent body within the US federal government tasked with forming and administering CAS. CASB ensures that cost accounting practices used by federal contractors are consistent, transparent, and in compliance with regulatory requirements.

One of the key elements of CAS is the cost accounting period. It is the time frame during which direct and indirect costs are accumulated and recorded for a particular cost object in the preceding cost accounting period.

What are Cost Accounting Standards

The length of the this period depends on the contract’s nature and the costs accumulated, which can range from a single day to several years.

The United States Department of Defense (DOD) developed the cost accounting practice. It was made to address the issue of affected CAS-covered contracts due to cost overruns and irregularities in final cost objectives in government contracts.

The goal was to provide guidance to contractors on the minimum acceptable cost accounting practices and to improve the accuracy and comparability of cost data submitted to the government.

The CAS is also used by other federal agencies, such as the Department of Energy and NASA, and the private sector has widely adopted them.

How Many Cost Accounting Standards Are There?

The CASB sets 19 cost accounting standards. These include:

  1. Consistency in estimating, accumulating, and reporting costs.
  2. Consistency in allocating costs incurred for the same purpose.
  3. Allocation of home office expenses to segments.
  4. Capitalization of tangible assets.
  5. Accounting for unallowable costs.
  6. Cost accounting period.
  7. Use of standard costs for Direct material & Direct labor.
  8. Accounting for compensated personal absence.
  9. Depreciation of tangible capital assets.
  10. Allocation of business unit general & administrative expenses to final cost objectives.
  11. Accounting for acquisition costs of material.
  12. Composition and measurement of the pension cost.
  13. Adjustment and allocation of the pension cost.
  14. Cost of money as an element of the cost of facilities capital.
  15. Accounting for the cost of deferred compensation.
  16. Accounting for insurance costs.
  17. Cost of money as an element of the cost of capital assets under construction.
  18. Allocation of direct and indirect costs.
  19. Accounting for independent research and development costs & bid and proposal costs.

What are basic accounting practices?

Basic accounting practices are the core principles and procedures that CAS businesses use to measure, record, and report financial information. These practices include:

  • Record cost or pricing data transactions accurately and consistently
  • Maintaining proper documentation and record-keeping
  • Following rules and regulations set forth by government agencies and accounting bodies
  • Properly classifying expenses and revenues
  • Providing accurate and timely financial statements

The principles of basic accounting practices form the foundation of all financial reporting and are essential for ensuring the accuracy and transparency of financial information.

Are Small Businesses Exempt from CAS?

CAS exemptions are given to small businesses, defined as businesses with less than $50 million in annual receipts. The reason for this exemption is to provide small businesses with relief from the burden of complying with CAS requirements.

However, small businesses are still expected to comply with other applicable accounting standards, such as Generally Accepted Accounting Principles. They may also be required to provide information about their accounting practices to the CAS administration.

Furthermore, the exemption is subject to review and may be revoked if the small business grows beyond the $50 million threshold.

Despite the exemptions, it is still important for small businesses to understand the basics of CAS and its provisions. It will help them better understand their competitors’ accounting practices and policies to make informed decisions about managing their contract subject.

What Is a CAS Disclosure Statement?

A CAS disclosure statement is submitted by contractors performing work under a government contract. The disclosure statement provides information about the contractor’s accounting practices and policies, including any deviations from the cost accounting standards established by the cognizant federal agency official.

The disclosure statement aims to help the government understand the contractor’s cost. In case of cost accounting practice change, the full or modified CAS coverage must ensure that the contractor complies with the standards.

CAS Compliance and Enforcement

The government enforces compliance with Cost Accounting Standards through audits and reviews of contractors’ financial statements. Contractors that are found to be non-compliant with CAS may face penalties and disallowance of costs, which can lead to significant financial losses.

Contractors are expected to maintain accurate records of their cost accounting practices and to provide these records to the government upon request.

Net CAS Covered Awards are typically given when a government agency awards a contract to a contractor subject to the CAS regulations.

CAS, GAAP, and FAR – Understanding Basics

CAS, GAAP, and FAR - Understanding Basics

GAAP, CAS, and FAR are three important accounting standards that contractors must understand.

Generally Accepted Accounting Principles (GAAP) are a collection of commonly-followed accounting rules and standards for preparing financial statements. Cost Accounting Standards (CAS) are accounting standards promulgated by the Cost Accounting Standards Board (CASB) to regulate and determine costs on negotiated procurements. And Federal Acquisition Regulation (FAR) is the body of laws that governs Government procurement in the US.

The contracts awarded to the foreign government or foreign concerns are under CAS exemption.

These three standards are important for contractors to understand as they provide the basis for the accounting practices and both native and foreign governments policies that contractors must follow to comply with the Federal government.


Cost Accounting Standards play a crucial role in ensuring federal contracts are executed in a uniform and consistent manner.

Understanding and adhering to CAS is essential for any entity engaged in federal contract work. Some standards require immediate compliance upon contract award, while others have a compliance deadline.

For more information on accounting and compliance-related doubts, visit the blog section.


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