Cost Accounting Standards (CAS)

Cost Accounting Standards (CAS) are a set of guidelines and rules established by the United States government to standardize the cost accounting procedures of companies that contract with the government. CAS aims to ensure that contractors provide accurate and consistent cost information to the government when they bid for and carry out contracts.

CAS also sets forth regulations that require contractors to disclose their cost accounting practices, to follow the disclosed practices consistently, and to comply with specified standards. It says how you charge to contracts, what gets charged to which contracts, dictates how you maintain your accounting systems and tells you how the costs flow from incursion to the final costs. It also instructs contractors on how to account for certain types of costs.

CAS is mandatory for companies that are awarded government contracts over a certain dollar amount. The standards cover a wide range of topics, including accounting for direct and indirect costs, allocation of costs, and disclosure requirements. Some specific examples of topics covered by CAS include:

• Accounting for material costs, including the valuation of inventory anidentification of scrap and waste.
• Allocation of overhead costs, including the appropriase of cost pools and allocation bases.
• Treatment of costs associated with changes in contract specifications, such as changes in the scope of work or changes in delivery schedules.
• Disclosure requirements for cost accounting practices, including the submission of cost impact statements and other reports to the government.

Failure to comply with the CAS can result in penalties and even the cancellation of government contracts.

What is the Cost Accounting Standards Board?

The United States government established the Cost Accounting Standards Board (CASB) in 1970 to develop and maintain standards for cost accounting practices used by government contractors. The CASB is part of the Office of Federal Procurement Policy (OFPP) within the Office of Management and Budget (OMB).

The primary responsibility of the CASB is to establish, amend, and interpret the Cost Accounting Standards (CAS) to ensure that contractors provide accurate and consistent cost information to the government. The board is composed of five members, including a chairman, appointed by the President with the advice and consent of the Senate.

The CASB has several key functions, including:

• Developing and maintaining the CAS: The board is responsible for establishing and maintaining the standards contractors must follow when submitting cost information to the government.
• Interpreting the CAS: The board provides guidance and interpretations of the CAS to help contractors comply with the standards.
• Enforcing the CAS: The board has the authority to investigate and enforce compliance with the CAS, including imposing penalties and sanctions on contractors who fail to comply with the standards.
• Promoting consistency and uniformity: The CASB works to promote consistency and uniformity in cost accounting practices used by contractors to ensure that the government receives accurate and comparable cost information from all contractors.

The CASB helps promote fairness and transparency in government procurement by setting standards and enforcing compliance.

Cost Accounting Standards (CAS) and the Federal Acquisition Regulation (FAR) are two different sets of regulations used in government contracting. While they are related and often used together, they have some important differences.

CAS was developed to provide uniformity and consistency in government contractors' accounting and cost practices. They are specifically focused on allocability.

On the other hand, the Federal Acquisition Regulation (FAR) is a set of regulations developed by the Federal Acquisition Regulatory Council (FAR Council) to govern the federal government's procurement process of goods and services.

FAR provides guidelines for the acquisition process, including bidding, contract management, and dispute resolution. FAR applies to all government contractors, regardless of the contract value, and it covers a broader range of topics than CAS. The FAR is specifically focused on allowability.

Some key differences between CAS and FAR include the following:

• Scope of regulations: CAS is specific to cost accounting practices, while FAR covers the entire procurement process, including contract management and dispute resolution.
• Applicability: CAS applies only to contractors who receive contracts above a certain dollar threshold, while FAR applies to all government contractors.

While CAS and FAR are both used in government contracting, they have different scopes, applicability, and enforcement mechanisms.

Federal Acquisition Regulation & Cost Accounting Standards

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There are currently nineteen Cost Accounting Standards. The CAS was initially issued in response to concerns about the consistency and accuracy of cost information provided by government contractors. The standards are periodically updated and revised to reflect changes in business practices and government procurement policies.

The 19 current cost accounting standards are:

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

Contracts subject to CAS may require full or modified coverage of these standards.

CAS applicability is determined by the contract type and the contractor's size. CAS applies to all negotiated contracts except those awarded to small businesses.

Contracts that require full coverage apply when:

• A contract is $50 million or more.
• In the prior accounting period, multiple contracts total $50 million or more.

Contracts that require moderate coverage apply when:

• A single contract is awarded at $7.5 million or more.
• All contracts that are not exempt and have not yet met the full coverage criteria.

Certain contracts may be exempt from CAS as discussed below.

Cost Accounting Standard (CAS) compliance refers to the requirement for government contractors to follow the guidelines and requirements set out in the 19 cost accounting standards when bidding on and performing government contracts. CAS compliance is mandatory for certain types of government contracts, and contractors who fail to comply with the standards may be subject to penalties and risk losing business.

To be CAS compliant, a contractor must:

• Identify the applicable CAS: The contractor must determine which standards apply to the contract they are bidding on or performing. Not all standards apply to all contracts, and the contractor must determine which are applicable.
• Establish and maintain cost accounting systems: The contractor must establish and maintain a cost accounting system that meets the requirements of the applicable CAS. The system must provide accurate and reliable cost information.
• Follow the requirements of each applicable standard: The contractor must follow the specific requirements of each applicable rule when bidding on and performing the contract. This includes properly disclosing cost accounting practices, accurately estimating, accumulating, and reporting costs, and ensuring that costs are allocated appropriately.
• Obtain and maintain records: The contractor must obtain and maintain records supporting the cost information in their bids and invoices. The records must be retained for a certain period of time and must be made available to the government upon request.
• Ensure compliance with subcontracts: The contractor must ensure that any subcontractors working on the contract are also CAS compliant.

CAS Disclosure

An important piece of CAS compliance is the submission of a Disclosure Statement (Form CASB DS-1) to the Administrative Contracting Officer (ACO) to document cost accounting practices in writing (see FAR 52.230-2). This process can be time-consuming and requires specificity. Contractors should take great care when completing a Disclosure Statement because it will be reviewed by the Defense Contract Audit Agency (DCAA) as a baseline for your business; any future changes to a firm's accounting practices will require a revision to the Disclosure Statement.

Contractors must disclose their cost accounting practices in writing and make this disclosure available to the government upon request. The disclosure must include the following information:

1. A description of the contractor's cost accounting practices, including the accounting methods used for estimating, accumulating, and reporting costs.
2. A statement of the contractor's policy regarding the treatment of unallowable costs under government regulations.
3. A description of the contractor's procedures for identifying and excluding unallowable costs from contract prices.
4. A statement of the contractor's policy regarding the treatment of indirect costs, including the allocation of such costs to final cost objectives.
5. A description of the contractor's procedures for determining and allocating indirect costs.
6. A statement of the contractor's policy regarding the treatment of special or unusual costs, including the treatment of costs associated with research and development, cost overruns, and restructuring.
7. A description of the contractor's procedures for identifying and allocating special or unusual costs.

The CAS disclosure must be updated periodically as the contractor's cost accounting practices change. Contractors must also maintain records supporting the disclosure and make these records available to the government upon request.

Certain government contracts and contractors may be exempt from the Cost Accounting Standards (CAS) under certain circumstances defined as class exemptions.

Class exemptions are granted to certain contracts deemed a low financial risk and do not require CAS compliance. These class exemptions are established by the CASB and may be revised or rescinded at any time.

Examples of contracts that may be exempt include:

• Any contract less than $750,000.
• Any contract less than $7.5 million is exempt, provided the company has not been awarded a contract greater than $7.5 million in the past.
• Contracts for commercial items.
• Sealed bid contracts.
• Contracts with foreign governments or international organizations.
• Contracts with small businesses.

It is important to note that exemption from the CAS does not mean exemption from other government contracting requirements or regulations. Exempted contractors may still be required to comply with the FAR and other relevant government regulations.

Are Small Businesses Exempt From CAS?

Under certain circumstances, small businesses may be exempt from the Cost Accounting Standards (CAS). However, the exemption applies only to certain types of small business contracts. It does not provide a blanket exemption from the CAS for all small businesses.

Small businesses may be exempt from CAS if:

1. The contract is awarded under the small business set-aside program: Contracts that are set aside exclusively for small businesses are exempt from the CAS. This exemption applies only to small businesses, not to large businesses subcontracting with small businesses.
2. The contract is a commercial item contract: Contracts for commercial items, which are goods or services that are customarily bought and sold in the commercial marketplace, are exempt from the CAS. This exemption applies to both small and large businesses.
3. The contract value is below the CAS threshold: The threshold is currently $7.5 million.

Your Guide to Government Compliance

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A government contracting firm's business processes play a pivotal role in meeting FAR and CAS compliance requirements and standards. Successfully managing those processes from beginning to end is innately part of the DNA of the Deltek Costpoint solution.

Designed with FAR and CAS in mind, key functionalities of Deltek Costpoint allow for the following:

• A logical and consistent method for the allocation of indirect costs to intermediate and final cost objectives.
• Accumulation of costs under general ledger control.
• Proper segregation of direct costs from indirect costs.
• Exclusion from costs charged to government contracts of amounts that are not allowable in terms of FAR 31, Contract Cost Principles and Procedures, or other contract provisions.
• Identification of costs by contract line item and units based on a contract's requirements.