Conformance of Cost Accounting Standards to Generally Accepted Accounting Principles for CAS 407 Use of Standard Costs for Direct Material and Direct Labor

Published

Sep 1, 2026

Effective

Oct 1, 2026

Citation

91 FR 56061

Agencies

OFFICE OF MANAGEMENT AND BUDGET, Office of Federal Procurement Policy

Final rule.

Summary

The Office of Management and Budget, acting through the Cost Accounting Standards Board, has issued a final rule that eliminates Cost Accounting Standard 407 and brings the related accounting requirements into line with Generally Accepted Accounting Principles (GAAP). The change is intended to simplify federal cost‑accounting rules, reduce administrative burdens for contractors, and ensure that the government’s cost‑recording methods are consistent with the accounting standards used by most businesses. The rule applies to any private‑sector company, nonprofit, or other entity that receives a federal contract or grant subject to the Cost Accounting Standards (CAS) program. Those contractors will no longer have to follow the specific “standard‑cost” calculations for direct material and labor that CAS 407 required; instead, they must apply the GAAP methods already used for other cost elements. The regulation also moves one definition to a new location in the federal acquisition regulations (chapter 99 of title 48, CFR). The rule was published in the Federal Register on September 1, 2026 (91 FR 56061) and became effective on October 1, 2026. Because it is a final rule, the public comment period that accompanied the earlier proposed rule has closed. Going forward, contractors should adjust their accounting practices to rely on GAAP for direct‑material and direct‑labor costs, and contracting officers will no longer enforce CAS 407 when reviewing proposals or audits.

AI-generated summary — verify against the Federal Register text.

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