Conformance of Cost Accounting Standards to Generally Accepted Accounting Principles for Cost Accounting Standards 404, 408, 409, and 411

OFFICE OF MANAGEMENT AND BUDGET <SUBAGY>Office of Federal Procurement Policy</SUBAGY> <CFR>48 CFR Part 9903 and 9904</CFR> <RIN>RIN 0348-AB90</RIN> <SUBJECT>Conformance of Cost Accounting Standards to Generally Accepted Accounting Principles for Cost Accounting Standards 404, 408, 409, and 411</SUBJECT> <HD SOURCE="HED">AGENCY:</HD> Cost Accounting Standards Board, Office of Federal Procurement Policy, Office of Management and Budget. <HD SOURCE="HED">ACTION:</HD> Notice of proposed rulemaking. <SUM> <HD SOURCE="HED">SUMMARY:</HD> The Office of Federal Procurement Policy (OFPP), Cost Accounting Standards Board (the Board), is releasing this notice of proposed rulemaking (NPRM) to elicit public comments on proposed changes to the Cost Accounting Standards (CAS) to conform CAS 404, 408, 409, and 411 to Generally Accepted Accounting Principles (GAAP). This notice combines CAS Board Case 2020-01 related to CAS 404 and CAS 411 and CAS Board Case 2021-02 related to CAS 408 and CAS 409 to provide a streamlined and efficient process for expedited completion of rulemaking for these two cases. </SUM> <EFFDATE> <HD SOURCE="HED">DATES:</HD> Comments must be in writing and must be received by October 14, 2025. </EFFDATE> <HD SOURCE="HED">ADDRESSES:</HD> Submit comments to the <E T="03">Federal Rulemaking Portal: https://www.regulations.gov.</E> by searching for “CASB 2025-01”. Select the link “Comment Now” that corresponds with “CASB 2025-01”. Follow the instructions provided on the “Comment Now” screen. Please include your name, company name (if any), and “CASB 2025-01” on your attached document. If your comment cannot be submitted using <E T="03">https://www.regulations.gov,</E> call or email the points of contact in the <E T="02">FOR FURTHER INFORMATION CONTACT</E> section of this document for alternate instructions. Comments received generally will be posted without change to <E T="03">https://www.regulations.gov,</E> including any personal and/or business confidential information provided. Public comments may be submitted as an individual, as an organization, or anonymously (see frequently asked questions at <E T="03">https://www.regulations.gov/faq</E> ). To confirm receipt of your comment(s), please check <E T="03">https://www.regulations.gov,</E> approximately two or three days after submission to verify posting. <E T="03">Privacy Act Statement:</E> The Board proposes this rule to elicit public views pursuant to 41 U.S.C. 1502. Submission of comments is voluntary. The information will be used to inform sound decision-making. Do not include any information you would not like to be made publicly available. Additionally, the OMB System of Records Notice, OMB Public Input System of Records, OMB/INPUT/01, 88 FR 20913 (available at <E T="03">www.federalregister.gov/documents/2023/04/07/2023-07452/privacy-act-of-1974-system-of-records</E> ), includes a list of routine uses associated with the collection of this information. <FURINF> <HD SOURCE="HED">FOR FURTHER INFORMATION CONTACT:</HD> John L. McClung, Manager, Cost Accounting Standards Board (telephone: 202-881-9758; email: <E T="03">john.l.mcclung2@omb.eop.gov</E> ). </FURINF> <SUPLINF> <HD SOURCE="HED">SUPPLEMENTARY INFORMATION:</HD> <HD SOURCE="HD1">I. Background</HD> Section 820 of the 2017 National Defense Authorization Act modified statutory responsibilities of the Board, codified at 41 U.S.C. 1501(c). These changes require the Board to conform CAS to GAAP and minimize the burden on contractors while protecting the interests of the Government. On March 13, 2019, the Board published a staff discussion paper (SDP) (84 FR 9143). The SDP established a global roadmap to help guide its approach to conformance. The roadmap identified seven standards (404, 407, 408, 409, 411, 415, and 416) as most suitable for potential conformance to GAAP. Each of these standards focuses primarily on cost measurement and assignment of costs to accounting periods. The Board noted that despite the difference in general focus between CAS and GAAP, there has been some convergence over the years as GAAP has evolved to address cost measurement and assignment of costs to accounting periods. Furthermore, the creation of the Financial Accounting Standards Boards (FASB) and the Accounting Standards Codification (ASC) as the recognized financial accounting and reporting standards for GAAP fosters increased uniformity and consistency. The FASB is recognized by the U.S. Securities and Exchange Commission as the designated accounting standard setter for public companies. FASB standards are recognized as authoritative by many other organizations, including State Boards of Accountancy and the American Institute of Certified Public Accountants (AICPA). The Board has concluded that these developments create opportunities to modify or eliminate overlapping CAS requirements—many of which have remain unchanged for over 50 years—where GAAP standards under ASC may be applied reasonably as a substitute for CAS to support contract cost and pricing. The March 2019 SDP also included the Board's initial assessment of CAS 408 and CAS 409 to conform them, where practicable, to GAAP. Based on the public comments from the SDP, and additional research conducted by the Board, the Board published an advanced notice of proposed rulemaking (ANPRM) (89 FR 53575) on June 27, 2024. The ANPRM noted the Board's provisional conclusions that CAS 408 could be eliminated in its entirety and the vast majority of CAS 409 could also be eliminated. On September 18, 2020, the Board published an SDP (85 FR 58399) to solicit views with respect to the Board's initial assessment of CAS 404 and CAS 411 to conform them, where practicable, to GAAP. Based on the public comments from the SDP, and additional Board research, the Board published an ANPRM (90 FR 5803) on January 17, 2025. The ANPRM noted the Board's provisional conclusions that the vast majority of CAS 404 could be eliminated and that CAS 411 could be eliminated in its entirety. In regards to CAS 408 and CAS 411, the Board provisionally concluded that these standards in their entirety have become unnecessary to protect the Government's interests, which may be achieved through reliance on GAAP, existing requirements in other CAS Standards, and the Federal Acquisition Regulation (FAR). In regards to CAS 404 and CAS 409, the Board provisionally concluded that nearly all of the content in these standards has become unnecessary to protect the Government's interests which may be achieved through reliance on GAAP, existing requirements in other CAS Standards and the FAR. Because of the limited amount of content identified for retention, the Board provisionally concluded that moving the retained requirements to another Standard rather than maintaining CAS 404 and CAS 409 with minimal content would best achieve the goal of streamlining CAS. This NPRM reflects input from the public, as well as research conducted by the Board. Unique CAS requirements were assessed for their necessity in protecting the interests of the Government or if the existing requirements in other CAS Standards or requirements in other relevant regulations may protect the interests of the Government. This NPRM is issued by the Board in accordance with the requirements of 41 U.S.C. 1502. <HD SOURCE="HD1">II. CAS 404—Capitalization of Tangible Assets</HD> <HD SOURCE="HD2">A. Overview and Conclusion</HD> CAS 404 was initially published February 27, 1973, at 38 FR 5318. It requires contractors, for the purposes of cost measurement, to establish and adhere to policies with respect to capitalization of the acquisition costs of tangible assets. CAS 404 also established criteria that the contractor's policies and procedures must satisfy. CAS 404 was modified in 1996 by the addition of CAS 404-50(d) to address issues relating to the treatment of gains or losses attributable to tangible capital assets subsequent to mergers or business combinations by government contractors, along with other relatively modest changes. With the exception of the 1996 additions, CAS 404 has remained static for over 50 years. As noted in the ANPRM, the comparison of CAS 404 with pertinent GAAP content revealed significant overlap and equivalent requirements with the noted exception of CAS 404-50(d)., which protects the government from paying duplicative costs when government contractors merge or are acquired. Absent the requirements of CAS 404-50(d)(1) the government would be at risk if an asset was increased in value such that the combined depreciation recognized by the both the acquired company and the acquiring company for government contracts exceeds the historic cost for which the asset was originally purchased for use. For all other requirements in CAS 404 a comparable requirement exists in GAAP that would protect the Government's interests and promote uniformity and consistency. The Board has concluded that reliance on GAAP would materially achieve uniformity and consistency necessary for government contracting. Furthermore, other CAS requirements adequately protect the government's interests. The Board has concluded that the Government's interests are adequately protected by relying on disclosed GAAP practices that are consistently followed and subject to notice of changes and cost recovery as follows: (1) All contractors whether subject to full or modified CAS coverage are subject to CAS 401 and will continue to be required to consistently follow their disclosed or actual cost accounting practices; and (2) They will continue to be bound by the 9903.201-4 CAS contract clauses requiring disclosure and consistency in cost accounting practices regardless of whether a specific standard exists. These contract clauses implement the statutory requirements for disclosure of 41 U.S.C. 1502(f)(1) and protections from payment of increased costs as a re ━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━ Preview showing 10k of 37k characters. 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