Two CAS Moves in One Day: What Small Contractors Need to Know

On September 11, 2025, the Office of Management & Budget’s (“OMB”) Cost Accounting Standards Board, which is chaired by the Office of Federal Procurement Policy (“OFPP”), dropped two important updates:

• A final rule that simplifies how revenue and leases are handled under CAS; and
• A proposed rule that would scale back or align four long-standing CAS standards with GAAP.

Both actions are aimed at reducing duplicate rules and making compliance more “commercial” – especially as the Trump Administration pushes to streamline government procurement overall.

First: What is CAS?

The Cost Accounting Standards (“CAS”) are the Government’s rulebook for keeping contract costs consistent and comparable on negotiated contracts. In practice, CAS is about three commonsense ideas:

• How big is the cost? Use the same estimating method every time.
• When do you record it? Put it in the right period.
• Who gets charged? Put it on the right contract.

That’s a lot like financial accounting, governed by the Generally Accepted Accounting Principles (“GAAP”), but CAS is tailored to pricing and cost allocation for certain U.S. Government contracts. While contracts with small businesses are exempt from CAS, these government-specific accounting standards will apply if/when you scale-up in size and begin to win CAS-covered work.

Why not just GAAP? GAAP serves investors and lenders, while CAS focuses on contract pricing and cost allocation on U.S. Government contracts, which can look quite different than commercial contracts. But Congress has instructed OMB to conform CAS to GAAP where practical, which is why we’re seeing a steady move toward fewer “Government-only” accounting rules.

The Two CAS Actions

1) Final rule: Updates to accounting rules related to revenue and leases (effective October 14, 2025)

• Accounting for revenue is now simpler for contractors working on CAS-covered contracts. CAS will use the same revenue rules that GAAP-compliant contractors already follow in their normal financials for revenue (ASC 606). No more adhering to a separate definition of “operating revenue” for CAS purposes.
• Accounting treatment of leases is clarified. CAS spells out which rentals matter in government cost-of-money formulas. In plain terms, with this final rule, “buy-like” rentals (longer-term, more like ownership) do count in those formulas where CAS says so, whereas regular rentals (typical office space or short-term equipment) don’t count. “Cost-of-money” is a way to recognize the cost of tying up your capital in facilities or equipment.
• Impact: If you already follow modern revenue rules, you’re largely set. For leases, this change is really about clarifying which types of leases to include in government cost-of-money formulas—nothing more.

2) Proposed rule: Scaling back or aligning four standards with GAAP

• On the same day, the CAS Board proposed trimming or aligning big pieces of CAS 404 (Capitalization of Tangible Assets), CAS 408 (Accounting for Compensated Personal Absence), CAS 409 (Depreciation of Tangible Capital Assets), and CAS 411 (Accounting for Acquisition Costs of Material) to conform those standards with GAAP. The CAS Board set a comment deadline of October 14, 2025 for this proposed rule.
• Impact: If adopted, you’d rely more on existing GAAP accounting principles and less on unique CAS mechanics—which means fewer parallel policies and reconciliations.

What’s the Bigger Trend?

• The alignment of CAS with GAAP continues – Congress requires that the CAS Board conform CAS to GAAP where it makes sense, and these two actions reflect that mandate.
• Cutting duplicate accounting requirements – In announcing these rules, the White House noted that the CAS Board had proposed eliminating dozens of redundant accounting requirements so that contractors performing CAS-covered contracts aren’t keeping “two sets of books,” with more reliance on GAAP and commercial auditing procedures (https://www.whitehouse.gov/briefings-statements/2025/09/white-house-omb-board-proposes-elimination-of-dozens-of-unnecessary-and-redundant-accounting-requirements-on-federal-contractors/).
• Federal procurement is being simplified more broadly – The Trump Administration’s “Revolutionary FAR Overhaul” aims to rewrite the Federal Acquisition Regulation (“FAR”) in plain, statute-rooted terms—another sign that non-essential, duplicative rules are on their way out.

What do these changes mean for small businesses?

By law, contracts and subcontracts with small businesses are exempt from CAS requirements. See 48 C.F.R. § 9903.201-1(b)(3). But the more your accounting procedures are aligned with CAS, the easier it will be for you to assist prime contractors who are required to follow CAS when there is an audit by the Federal Government.

And more generally, paying attention to CAS’s unique requirements, even if you don’t implement them, will help you prepare for growth if you become a large business concern and win contracts that implicate CAS.

What to do this quarter

1. Revenue: Ask finance one question—“Are we following ASC 606 everywhere?” If yes, you’re already aligned with the CAS change on revenue.
2. Rentals (leases): Make a simple list of your rentals and label them “buy-like” vs. “regular.” If you are working on a CAS-covered contract, only the buy-like ones should feed into the cost-of-money formulas that the final rule mentions.
3. Have a view on the proposed changes to CAS 404. 408, 409, or 411? Consider commenting by October 14, 2025.
4. Subcontractor readiness (even if CAS-exempt): Confirm your time, purchases, subcontracts, and overhead are mapped to the correct projects, consistently. That’s the best way to stay off the audit radar and get paid on time.