Cost Accounting Standards

Cost Accounting Standards (popularly known as CAS) are a set of 19 standards and rules promulgated by the United States Government for use in determining costs on negotiated procurements. CAS differs from the Federal Acquisition Regulation (FAR) in that FAR applies to substantially all contractors, whereas CAS applies primarily to the larger ones.

CAS Applicability

A company may be subject to "full" CAS coverage (required to follow all 19 standards), "modified" CAS coverage (required to follow only Standards 401, 402, 405, and 406), or be exempt from coverage. However, a company under "full" coverage is not subject to a standard where it does not apply (e.g., a company which does not use standard costing does not have to comply with CAS 407).

"Full" coverage applies only when a company receives either one CAS-covered contract of US$50 million or more, or a number of smaller CAS-covered contracts totalling US$50 million. In addition to complying with all 19 standards (where applicable), the company must also file a CAS Disclosure Statement, which spells out the company's accounting practices (such as if certain costs are treated as direct contract charges or as part of overhead expense). There are two versions of the CAS Disclosure Statement: DS-1 applies to commercial companies while DS-2 applies to educational institutions.

"Modified" coverage applies when a company receives a single CAS-covered contract of US$7.5 million or more.

In some instances, a contract may be exempt from CAS standards:

•     Contracts awarded to small businesses are exempt from CAS, regardless of contract size
•     Any contract less than US$7.5 million is exempt, provided the company has not been awarded a contract greater than US$7.5 million, and also any contract less than US$650,000 is always exempt
•     Contracts for commercial items
•     Contracts awarded under sealed bid procedures, or where "adequate price competition" was available (the latter meaning where at least two companies had the ability to bid and perform on a contract, even if only one bid was later received)
•     Contracts where the price is set by law or regulation
•     Contracts awarded to foreign governments
•     Contracts awarded to foreign concerns (only the disclosure statement and CAS 401 and 402 apply in this case) (See CFR 9903.201-1(b))
•     Expired as of October 11, 2011: Contracts where performance will be performed entirely outside the United States (including territories and possessions)

Furthermore, in some instances even where a company is subject to a standard, different rules may apply within the standard itself as to what a company is required to do. As an example, under CAS 403, if Company A's "residual expenses" (defined as those expenses incurred by the home office – usually the corporate office – which cannot be identified to a specific contract, group of contracts, or company segment) exceed a specified percentage of revenue, Company A must follow a dictated "three-factor" formula to allocate such expenses, but if Company B's residual expenses do not exceed the percentage (even if, in dollar terms, they are greater), Company B may follow the formula but is not required to do so.


Cost Accounting Standards as applied to Educational Institutions

• Located in A-21 (2 CFR 220)
• Federal sponsored grants and contracts
• Annual Disclosure Statement
• Entities receiving <4@25 million in federally sponsored agreements annually are exempt from Disclosure Statement
• Other exemptions apply

Four Basic Requirements:

• Consistency in estimating, accumulating and reporting costs
• Consistency in allocating costs
• Consistency in cost accounting periods
• Accounting for unallowable costs