Government contractors are facing one of the most significant shifts in the Cost Accounting Standards (CAS) environment in decades. Recent statutory changes have substantially increased CAS applicability and Disclosure Statement thresholds, while the Cost Accounting Standards Board (CASB) has made significant progress on a major effort to align several longstanding standards with Generally Accepted Accounting Principles (GAAP). At the same time, the Defense Contract Audit Agency (DCAA) has issued new audit guidance explaining how auditors should evaluate CAS compliance following these changes. Together, these developments are expected to reduce compliance burdens for many contractors while modernizing the CAS framework.

These changes are occurring on two separate tracks. The FY 2026 NDAA threshold increases became effective for contracts entered into after June 30, 2026, while the CAS Board's final rule rescinding CAS 408 and 411, and most provisions of CAS 404 and 409, became effective Aug. 7, 2026. Shortly thereafter, DCAA issued two memoranda providing implementation guidance to auditors: MRD 26-CCLD-004(R), Audit Alert on the Increase to Cost Accounting Standards (CAS) Monetary Thresholds, and MRD 26-CCLD-005(R), Audit Guidance on Conformance of CAS to GAAP for CAS 404, 408, 409, and 411.

The recent changes to CAS represent more than a routine update to compliance thresholds. Taken together, the substantial increase in CAS applicability thresholds and the Cost Accounting Standards Board's ongoing efforts to align CAS requirements with GAAP suggest a broader policy trend: concentrating CAS oversight on larger, more complex contractors while reducing regulatory burdens for commercial and emerging government suppliers.

Higher CAS and Disclosure Statement thresholds

The FY 2026 National Defense Authorization Act significantly increased the thresholds governing CAS applicability and compliance requirements. Among the most notable changes are:

• • The CAS applicability threshold increased from $2.5 million to $35 million.
  • The historical $7.5 million trigger contract rule was eliminated.
  • The threshold for full CAS coverage increased from $50 million to $100 million.
  • The threshold requiring submission of a CAS Disclosure Statement (CASB DS-1) increased from $50 million to $100 million.
  • Contracts and subcontracts between $35 million and $100 million generally will be subject to modified CAS coverage and must comply with CAS 401, CAS 402, CAS 405, and CAS 406.
  • The threshold for agency-head CAS waivers increased from $15 million to $100 million.

For many contractors, particularly mid-sized businesses, these threshold increases may fundamentally change the compliance landscape. Companies that historically monitored contract awards closely to avoid triggering CAS requirements may find themselves operating below CAS thresholds for substantially longer periods of time. Likewise, organizations approaching the prior $50 million Disclosure Statement threshold may now be able to defer or avoid the administrative burden associated with preparing and maintaining a CASB DS-1.

DoD class deviations accelerate implementation

While the FAR, DFARS, and CAS regulations continue to be updated to reflect the FY 2026 NDAA reforms, the Department of Defense has issued class deviations directing contracting officers to apply new statutory thresholds for applicable acquisitions. As a result, contractors may encounter solicitations, contract awards, and modifications that implement the revised thresholds even where portions of the existing regulatory text have not yet been formally revised. Contractors should carefully review solicitation provisions and contract clauses to determine when the new thresholds apply and assess the potential impact on CAS coverage, Disclosure Statement requirements, and certified cost or pricing data obligations.

An emerging compliance gap

Contractors should note that the recent threshold increases have further separated Cost Accounting Standards applicability from the certified cost or pricing data requirements. While certified cost or pricing data generally may not be required unless a procurement exceeds $10 million, CAS coverage generally does not begin until the $35 million threshold is exceeded, creating a broader range of procurements that may be subject to one requirement but not the other.

This widening gap may be one of the most significant practical consequences of the FY 2026 NDAA changes. Historically, many contractors viewed CAS compliance and certified cost or pricing data requirements as closely aligned compliance obligations. Going forward, contractors may need to rethink internal controls, proposal compliance procedures, and training programs to address situations where certified cost or pricing data requirements apply but CAS coverage does not.

These changes are intended to reduce the compliance burden on contractors, particularly small and mid-sized businesses, while allowing the government to focus CAS oversight on larger contractors. The policy objective also appears consistent with broader government efforts to attract nontraditional and commercial companies into the federal marketplace by reducing regulatory barriers that may discourage participation in government contracting. For many organizations, the increased thresholds may delay or eliminate the need to comply with full CAS coverage requirements or maintain a Disclosure Statement.

CAS standards eliminated or streamlined

In a separate but related modernization effort, the CASB recently issued a final rule conforming portions of CAS to GAAP. Effective Aug. 7, 2026, the Board rescinded CAS 408 (Accounting for Costs of Compensated Personal Absence) and CAS 411 (Accounting for Acquisition Costs of Material) in their entirety and rescinded most provisions of CAS 404 (Capitalization of Tangible Assets) and CAS 409 (Depreciation of Tangible Capital Assets).

The CASB concluded that GAAP, together with existing CAS consistency standards, allocation standards, and FAR requirements, provides sufficient guidance in these areas. According to the Board, the changes eliminate duplicative requirements while continuing to protect the Government's interests.

The decision is noteworthy because it reflects a growing willingness by the CASB to rely on established commercial accounting frameworks where it believes separate CAS requirements no longer provide meaningful additional oversight. While the Board emphasized that CAS consistency and allocation requirements remain intact, the rescission of entire standards raises broader questions about whether additional CAS simplification efforts may follow in future rulemaking.

Remaining asset-related requirements move to CAS 405

While CAS 404 and CAS 409 are largely eliminated, certain provisions were retained because the CASB determined they continue to serve an important purpose. Rather than maintaining separate standards with only limited remaining content, the Board transferred those requirements into CAS 405, Accounting for Unallowable Costs. Specifically, CAS 405 now contains provisions addressing:

• • Gains and losses on the disposition of tangible capital assets
  • Certain transfers of tangible capital assets occurring in non-arm's-length transactions
  • Asset valuation following business combinations, mergers, and acquisitions
  • Agreements regarding shortened service lives for certain capital assets

This change streamlines the CAS structure while preserving requirements intended to prevent duplicate cost recovery and protect the government from inappropriate capitalization or depreciation practices arising from business combinations and asset transactions.

Importantly, although most of CAS 404 and CAS 409 were rescinded, certain provisions survive through their incorporation into CAS 405. Because CAS 405 is one of the four standards applicable under modified CAS coverage, some asset-related requirements that were previously associated with full CAS coverage will continue to apply to contractors performing modified CAS-covered contracts. Contractors should therefore evaluate not only what was removed from CAS 404 and CAS 409, but also what was retained and relocated within CAS 405.

For contractors involved in mergers, acquisitions, restructurings, or internal asset transfers, these retained provisions remain particularly important because they continue to address areas where the government historically has been concerned about the potential for duplicate cost recovery or inappropriate asset valuation methodologies.

Implications for Disclosure Statements

The increase in the Disclosure Statement threshold from $50 million to $100 million may significantly reduce the number of contractors required to prepare and maintain a CASB DS-1. However, contractors that remain subject to Disclosure Statement requirements should carefully evaluate the impact of the recent CAS changes on their existing disclosures.

Importantly, the CASB stated that the rescission of these standards, either wholly or in part, generally should not require contractors to change their disclosed cost accounting practices because the underlying requirements are largely consistent with GAAP. Likewise, the Board noted that contractors will remain subject to CAS consistency requirements and disclosure obligations even though specific standards have been removed.

Nevertheless, contractors should not assume that the elimination of a CAS standard automatically eliminates related compliance considerations. Organizations should review accounting policies, Disclosure Statements, and internal guidance to confirm that they remain aligned with applicable CAS consistency requirements, FAR provisions, and GAAP-based practices.

DCAA audit guidance on the new thresholds

The issuance of DCAA's MRD 26-CCLD-004(R) provides insight into how auditors will implement the NDAA changes. DCAA instructed auditors to coordinate with cognizant acquisition officials regarding ongoing CAS audits and emphasized that prior awards retain their existing CAS coverage even though the thresholds have increased. The guidance confirms that although the statutory changes reduce CAS applicability for many future awards, contractors should continue evaluating existing CAS-covered contracts separately because prior CAS coverage generally remains unchanged. The memorandum also notes that some contractors may no longer require an initial Disclosure Statement audit depending on the timing and value of future awards.

For contractors, lower compliance obligations may not automatically eliminate current audit activity. Existing CAS-covered contracts should be evaluated separately from future awards, and contractors should assess whether the revised thresholds affect Disclosure Statement requirements, CAS coverage, and audit exposure.

DCAA guidance on CAS-to-GAAP conformance

DCAA's MRD 26-CCLD-005(R) provides important insight into how auditors will evaluate contractor accounting practices after the elimination of CAS 408 and CAS 411 and the significant reduction of CAS 404 and CAS 409. The memorandum instructs auditors to assess how contractors' GAAP-based accounting practices interact with remaining CAS requirements and consistency standards.

Although certain CAS standards have been rescinded, contractors should not assume that DCAA scrutiny will disappear. Rather, auditors are expected to evaluate whether accounting practices governing capitalization, depreciation, compensated absences, and material accounting continue to satisfy applicable GAAP requirements and remaining CAS obligations. The guidance reflects DCAA's view that CAS modernization represents a shift toward greater reliance on GAAP rather than a reduction in oversight.

As a result, contractors should review accounting policies related to capitalization, depreciation, compensated absences, and material accounting, as well as documentation supporting the relationship between GAAP-based accounting practices and CAS compliance.

Contractors should also take this opportunity to evaluate how the changes affect their CAS applicability, Disclosure Statement requirements, accounting policies, and proposal compliance procedures. In particular, organizations should assess whether existing compliance processes were designed around thresholds that are no longer applicable under the FY 2026 NDAA.

What these changes signal for the future of CAS compliance

Taken together, the recent threshold increases, CAS-to-GAAP conformance efforts, and DCAA implementation guidance may signal more than a series of isolated regulatory changes. They suggest a continued effort to streamline the CAS framework, reduce unnecessary compliance burdens, and better align government contracting requirements with commercial accounting practices.

Many contractors will benefit from reduced compliance obligations, fewer unique accounting requirements, and potentially reduced Disclosure Statement responsibilities. At the same time, organizations should carefully assess how these changes affect their CAS applicability, accounting policies, Disclosure Statements, and government contract portfolio.

Whether these changes ultimately represent the beginning of a broader modernization of Cost Accounting Standards remains to be seen. However, contractors should view the current reforms not simply as compliance updates, but as indicators of the government's evolving approach to acquisition oversight and contractor regulation.