CAS 407 Gets Axed to Sync with Accounting Norms
Published Date: 9/1/2026
Rule
Summary
The Office of Management and Budget (OMB), Cost Accounting Standards Board (the Board), is publishing a final rule rescinding Cost Accounting Standard (CAS) 407 to conform it with Generally Accepted Accounting Principles (GAAP). One definition is transferred to a different location within chapter 99 of title 48, Code of Federal Regulations. This final rule follows issuance of a Notice of Proposed Rulemaking (NPRM) (91 FR 13562).
Analyzed Economic Effects
4 provisions identified: 2 benefits, 2 costs, 0 mixed.
Rescinds CAS 407; rely on GAAP
The Board rescinds Cost Accounting Standard (CAS) 407 effective October 1, 2026, eliminating 12 of the 16 requirements in that standard and removing almost 2,000 words of regulatory text. The rule directs contractors to rely on disclosed Generally Accepted Accounting Principles (GAAP) practices for CAS purposes, which the Board says reduces duplicative compliance requirements for contractors, auditors, and oversight functions.
Production-Unit Rules Move to CAS 418
Limited CAS 407 requirements about standard costs and variances at the production unit level are moved into CAS 418 effective October 1, 2026. The rule defines a "production unit" and requires that standard costs and related variances be accounted for at the production unit level, with variances allocated to cost objectives at least annually or, if immaterial, included in indirect cost pools; allocation bases include material cost at standard, units of output, labor cost at standard, or labor hours at standard.
Small Businesses Remain Exempt
The rule confirms CAS Board rules do not impact small entities under the Regulatory Flexibility Act because contracts and subcontracts with small business concerns are exempted from all CAS requirements. Small businesses therefore remain exempt from the CAS changes described in this rule.
Disclosure Requirement Continues
Contractors must continue to disclose cost accounting practices (for example, inventory method changes like FIFO to LIFO) under CAS 401 and 41 U.S.C. 1502(f)(1) using the Disclosure Statement (CASB DS-1). The Board states that any current or future changes related to standard costing or variances will be treated as unilateral changes as defined in 9903.201-6(b)(2).
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