Cost Accounting Standards: An Overview

Cost Accounting Standards (CAS) are a set of regulations established by the United States Government to ensure uniformity and consistency in cost accounting practices among defense contractors and subcontractors. These standards apply to negotiated procurements exceeding $100,000 and aim to achieve accurate and reliable cost determination, cost allocation, and cost reporting.

Number of Cost Accounting Standards

Initially, the Cost Accounting Standards Board (CASB) adopted 19 standards, numbered 401 to 420, with 419 remaining unassigned. The current CASB has readopted these standards with minor modifications, maintaining the total number of CAS at 19.

Scope of Cost Accounting Standards

CAS encompasses a wide range of cost elements, including direct and indirect costs, material costs, labor costs, depreciation, pension plans, personal compensation, and general and administrative expenses. These standards provide guidance on the treatment, allocation, and reporting of these costs to ensure consistency and accuracy in cost accounting practices.

Applicability of Cost Accounting Standards

CAS primarily applies to larger contractors involved in government contracts. The applicability of CAS to a particular contract depends on various factors, such as the contract size, type, and other relevant considerations. CAS is applied through Federal Acquisition Regulation (FAR) clauses, and the extent of CAS coverage can vary.

Full Coverage:

Companies with a single CAS-covered contract of $50 million or more in the current accounting period or multiple CAS-covered contracts totaling $50 million in the preceding cost accounting period are subject to full CAS coverage. Under full coverage, companies must comply with all 19 standards and file a CAS Disclosure Statement detailing their cost accounting practices.

Modified Coverage:

Modified CAS coverage applies when a company receives a single CAS-covered award of $7.5 million or more. This is known as the “Trigger” contract. Modified coverage requires compliance with four specific standards (401, 402, 405, and 406) on all contracts until the company meets the criteria for full coverage.

Exemptions:

Certain contracts and contractors are exempt from CAS standards. These exemptions include contracts awarded to small businesses, contracts below specific thresholds, contracts for commercial items, contracts awarded under sealed bid procedures, contracts where adequate price competition exists, contracts where the price is set by law or regulation, contracts awarded to foreign governments or concerns, and previously, contracts performed entirely outside the United States.

Conclusion

Cost Accounting Standards play a vital role in ensuring the accuracy, consistency, and reliability of cost accounting practices among defense contractors and subcontractors. The 19 CAS standards cover a wide range of cost elements and provide guidance on their treatment, allocation, and reporting. The applicability of CAS varies depending on the contract size, type, and other factors, with full coverage, modified coverage, and exemptions applying in different scenarios.

References:

1. Defense Acquisition University: Cost Accounting Standards (CAS)
2. Synder: Accounting Standards in Cost Accounting – Cost Accounting Standards (CAS)
3. Wikipedia: Cost Accounting Standards

FAQs

How many cost accounting standards are there?

There are 19 Cost Accounting Standards (CAS), numbered 401 to 420, with 419 remaining unassigned.

What is the purpose of CAS?

CAS aims to achieve uniformity and consistency in cost accounting practices among defense contractors and subcontractors, ensuring accurate and reliable cost determination, cost allocation, and cost reporting.

Who is subject to CAS?

CAS primarily applies to larger contractors involved in government contracts. The applicability depends on factors such as contract size, type, and other relevant considerations.

What are the different types of CAS coverage?

There are two types of CAS coverage:

• Full Coverage: Companies with a single CAS-covered contract of $50 million or more or multiple CAS-covered contracts totaling $50 million in the preceding cost accounting period are subject to full CAS coverage.
• Modified Coverage: Companies with a single CAS-covered award of $7.5 million or more are subject to modified CAS coverage, requiring compliance with four specific standards (401, 402, 405, and 406) on all contracts until they meet the criteria for full coverage.

Are there any exemptions from CAS?

Yes, certain contracts and contractors are exempt from CAS standards. These exemptions include contracts awarded to small businesses, contracts below specific thresholds, contracts for commercial items, contracts awarded under sealed bid procedures, contracts where adequate price competition exists, contracts where the price is set by law or regulation, contracts awarded to foreign governments or concerns, and previously, contracts performed entirely outside the United States.

What are the key cost elements covered by CAS?

CAS covers a wide range of cost elements, including direct and indirect costs, material costs, labor costs, depreciation, pension plans, personal compensation, and general and administrative expenses.

How are CAS applied to government contracts?

CAS is applied to government contracts through Federal Acquisition Regulation (FAR) clauses. The extent of CAS coverage can vary depending on the contract size, type, and other factors.

What are the benefits of implementing CAS?

Implementing CAS can provide several benefits, including better understanding of costs, increased profitability, improved efficiency, better financial reporting, compliance with regulations, and a competitive advantage.