Cost Accounting Standards (CAS) are a critical component of general accounting for government contracts. The Cost Accounting Standards Board (CASB) ensures consistent and uniform cost accounting practices for government grants and contracts with 19 standards. These standards ensure consistency, transparency, and accuracy in the accounting practices of companies that provide goods and services to federal agencies.
As contractors and subcontractors engage in procurement processes, CAS becomes indispensable, guiding them in estimating, accumulating, and reporting costs, as well as settling disputes. However, navigating the complexities of CAS can be challenging, particularly for newcomers to government contracting.
This article will serve as a valuable resource for contractors of all sizes, offering insights into the intricacies of cost accounting standards. We’ll also touch on how consultants, like the team of CPAs at Diener & Associates, help contractors navigate the complexities of CAS and simplify accounting for government contracts.
The Differences Between CAS, FAR, and GAAP
Cost Accounting Standards (CAS), Generally Accepted Accounting Principles (GAAP), and Federal Acquisition Regulation (FAR) each serve distinct purposes in the financial and regulatory landscape of accounting for government contracts.
While GAAP focuses on financial accounting and has broader applicability, CAS specifically targets cost accounting and is applicable to entities holding contracts with the US government and its agencies based on contract value thresholds. As a result, there are instances where CAS and GAAP overlap, and entities may need to keep two sets of books to comply with cost accounting requirements.
In contrast, FAR emphasizes the reasonableness of costs. CAS, on the other hand, provides guidance on cost measurement and allocation. It’s possible for costs to be allocable under CAS but not under FAR or vice versa. CAS compliance, when applicable, is a prerequisite for cost allowability under FAR.
Applicability, Exemptions, and Types of Coverage for CAS
CAS focuses on contracts rather than contractors or agencies and applies to negotiated contracts exceeding a specified monetary threshold, which may change over time. Generally, contracts awarded above a certain value, such as $7.5 million, are subject to CAS coverage, unless an exemption applies.
Exemptions from CAS may include sealed-bid contracts, contracts with small businesses or foreign governments, and contracts with prices established by law or regulation. Furthermore, contracts valued below a certain threshold, such as $7.5 million, are exempt if the contractor is not presently performing any CAS-covered awards. Please consult the most recent regulations and resources to verify the accuracy of these details and any applicable monetary thresholds.
Coverage falls into two categories: full coverage and modified coverage. Full coverage subjects a contract to all 19 standards. It applies to single awards of over $50 million or nonexempt contract awards when the net covered awards in the preceding cost accounting period totaled at least $50 million.
On the other hand, modified coverage applies to four standards and is applicable after the award of a $7.5 million “trigger” contract if the covered contract is less than $50 million and the total net CAS-covered awards in the preceding cost accounting period are below $50 million. Modified coverage remains applicable for the entire contract life span, even if the contractor later receives a contract subject to full coverage.
CAS Enforcement & Compliance
CAS compliance and enforcement involve the appointment of a Cognizant Federal Agency Official (CFAO) for CAS administration. The CFAO oversees the administration of all CAS requirements. When an entity secures its first CAS-covered contract, compliance with all 19 standards is not instantaneous, although some standards necessitate immediate compliance upon contract award. In contrast, others require compliance by the start of the next cost accounting period or the next full fiscal year.
Contractors holding CAS-covered contracts must adhere to several regulatory requirements, including compliance with each applicable CAS, disclosure of cost accounting practices, consistent application of these practices, notifying the government of any changes in them, and calculation of contract cost and price adjustments resulting from them.
CAS audits are carried out to evaluate whether a contractor’s policies and practices align with CAS requirements, and may be initiated if the CFAO believes a contractor is noncompliant.
Other types of audits, such as accounting system audits, incurred cost audits, and forward pricing rate proposal audits, can also raise red flags that prompt compliance audits. To ensure compliance, contractors disclose their cost accounting practices and adhere to related policies. Maintaining consistency between your policy and practice is essential and critical to successfully navigating any potential CAS audits.
Choose Experienced Consultants To Ensure CAS Compliance
Understanding the complexities of CAS compliance can be daunting, but contractors can confidently navigate this landscape with the right guidance and support. As a government contractor, it’s imperative that you receive expert consulting and assistance to guarantee that your cost accounting practices align with the ever-evolving regulatory requirements — that’s where the skilled CPAs at Diener & Associates come in.
Let our team of experienced CPAs help you effectively navigate the world of CAS and accounting for government contracts, ensuring your business remains compliant and poised for success. Don’t leave CAS compliance to chance; contact Diener & Associates today, and let us help your company in your government contracting endeavors.