Cost Accounting Standards Just Got Rewritten: What the New $35 Million Threshold Means for Growing Small Businesses

A July 2026 final rule rescinds four Cost Accounting Standards effective August 7, and a separate NDAA provision raises the CAS applicability threshold from 2.5 million dollars to 35 million dollars. Neither change touches the small business CAS exemption directly, but both reshape the runway for companies about to outgrow it.

Category: GovCon News · 9 min read · Published 2026-07-27

On July 8, 2026, the Cost Accounting Standards Board finalized a rule that tears out a substantial chunk of a compliance regime that has governed how contractors measure and allocate costs since the 1970s. The rule takes effect August 7, 2026. Layered on top of it is a separate, arguably bigger change: Section 1806 of the 2026 National Defense Authorization Act raised the basic dollar threshold that triggers Cost Accounting Standards coverage from 2.5 million dollars to 35 million dollars, and eliminated the old rule that once a contractor won a single contract above 7.5 million dollars, every other contract in its portfolio became CAS covered too.

Most small businesses reading this are already fully exempt from CAS, and that has not changed. But if your company is approaching the size standard for your NAICS code, planning a joint venture or teaming arrangement with a mid-size partner, expecting to graduate out of the 8(a) program, or simply hoping to grow past small business status without inheriting a new layer of accounting bureaucracy, these two changes together matter quite a bit. Here is what happened, what did not change, and what to do about it.

What the CAS Board Actually Rescinded

The July 8 final rule (91 FR 42139, RIN 0348-AB90) conforms four of the nineteen Cost Accounting Standards to Generally Accepted Accounting Principles. CAS 408, which governed accounting for costs of compensated personal absence such as vacation and sick leave, is rescinded in full. CAS 411, which governed accounting for the acquisition costs of materials, is also rescinded in full. CAS 404, covering capitalization of tangible assets, and CAS 409, covering depreciation of tangible capital assets, are rescinded except for a handful of provisions the Board judged still necessary to protect the government's interest. Those surviving provisions, including a rule that requires assets acquired in a business combination to be carried at the seller's net book value rather than stepped up or down, move into a new consolidated paragraph at 9904.405-40(g). In total, the Board says the rule eliminates 68 of 72 individual requirements across the four standards and removes more than 10,000 words of regulatory text.

For contractors who are actually subject to CAS today, the accounting itself mostly does not change, because the rescinded provisions were already nearly identical to GAAP. The real work is administrative. Disclosure statements, cost accounting manuals, and forward pricing rate proposals that cite CAS 404, 408, 409, or 411 by number need to be updated to reflect that those standards no longer exist in their old form, and contractors need to document why their practices still hold under GAAP and the surviving CAS provisions.

The Threshold Change Is the Part That Reaches More Companies

The rescission of four standards mostly affects contractors already deep inside the CAS compliance regime. The threshold change reaches further. Before this year, CAS applicability was tied to the Truthful Cost or Pricing Data statute and sat at 2.5 million dollars, with a separate 7.5 million dollar trigger contract rule that meant winning one contract above that amount pulled every other contract in a company's portfolio into CAS coverage, even small ones. Section 1806 of the 2026 NDAA decoupled the CAS threshold from that statute entirely, set it at a flat 35 million dollars, and eliminated the trigger contract concept altogether. A company can now hold multiple contracts under 35 million dollars each without any of them becoming CAS covered, something that was not possible under the old trigger rule.

The Cost Accounting Standards Board separately proposed raising the threshold for full CAS coverage, the point at which a contractor must comply with all nineteen standards and file a disclosure statement, from 50 million dollars to 100 million dollars, along with raising the CAS waiver authority available to agency heads from 15 million to 100 million dollars. The Board's own analysis of five years of Federal Procurement Data System data found that raising the basic threshold to 35 million dollars would remove about 60 percent of currently CAS covered business segments while preserving more than 90 percent of the dollars currently subject to coverage, and that raising the full coverage threshold to 100 million dollars would remove nearly 30 percent of entities from full coverage while preserving 99 percent of the covered dollars. In the Board's words, the goal is to reduce barriers to entry for nontraditional and midsize contractors, including businesses that have outgrown small business status and no longer qualify for a full CAS exemption on that basis alone.

Why This Matters Even Though Small Businesses Are Already Exempt

Contracts and subcontracts with small businesses have always been exempt from CAS entirely, regardless of dollar value, and that exemption is untouched by any of this. So if your company is small today and stays small, none of this changes your compliance obligations directly. But the threshold change matters to a specific and common set of situations that small government contractors run into as they grow.

Graduating out of small business status. A company that outgrows its NAICS size standard, whether through organic revenue growth, a recompete under a larger scope, or a merger, loses its blanket CAS exemption the moment it is no longer small. Under the old rules, that company could be pulled into full CAS compliance the first time it won a contract above 7.5 million dollars, and every other contract it held would follow. Under the new rules, that same company can hold contracts up to 35 million dollars each without triggering CAS at all, and would need contracts approaching 100 million dollars before facing the full nineteen standard compliance burden. That is a materially longer runway to build out cost accounting infrastructure before it becomes mandatory.

8(a) program graduates. Firms exiting the 8(a) program after their nine year term, or losing 8(a) eligibility for other reasons, face the same cliff. A higher threshold gives a recently graduated 8(a) firm more room to compete for larger awards without immediately needing a CAS compliant accounting system in place.

Joint ventures and mentor protege arrangements. Teaming with a mid-size or other than small mentor can expose a joint venture to CAS depending on how the arrangement is structured and sized. A higher applicability threshold reduces how often that exposure gets triggered on individual awards.

Indefinite delivery contracts. The Board also proposed clarifying that CAS applicability on indefinite delivery contracts is determined order by order for multiple award vehicles, using the value of each individual task or delivery order rather than the contract's overall ceiling. For single award vehicles, applicability is determined at the value of the whole contract. That distinction matters for any company competing on GWACs, the Federal Supply Schedules Program, or other multiple award vehicles where individual order values, not headline contract ceilings, will now decide CAS exposure.

What Has Not Changed

Small business and sealed bid contracts remain fully exempt from CAS, as do commercial item contracts awarded under FAR 12.207 and firm-fixed-price contracts or subcontracts awarded on the basis of adequate price competition without certified cost or pricing data. The consistency and disclosure obligations that remain in force for contractors who are subject to CAS have not been loosened, only the specific rescinded standards have. And the Regulatory Flexibility Act analysis attached to the threshold proposal is explicit that CAS Board rules do not impact small entities within the meaning of that statute, because small business contracts are already fully exempt regardless of dollar value.

What to Do Right Now

If your company is already CAS covered, pull your disclosure statement and cost accounting manual and flag every reference to CAS 404, 408, 409, or 411 before the August 7, 2026 effective date, then document why your existing practices still hold under GAAP and the surviving provisions now consolidated at 9904.405-40(g).

If you are approaching your NAICS size standard, planning a recompete under a larger scope, or nearing the end of your 8(a) program term, model out what your contract portfolio looks like under a 35 million dollar applicability threshold instead of the old 7.5 million dollar trigger, since the runway before you need CAS compliant accounting infrastructure just got considerably longer.

If you are structuring a joint venture or mentor protege arrangement with a mid-size or other than small partner, revisit how contract values in that arrangement compare to the new 35 million dollar threshold rather than the old figures, since the exposure calculus has changed.

If you compete on multiple award vehicles such as GWACs or the Federal Supply Schedules Program, understand that CAS applicability on those vehicles is now expected to be assessed order by order using individual task or delivery order values, not the overall contract ceiling, which changes how you should think about CAS exposure on any single award.

Watch for the Board's separate proposed rule raising the full coverage and disclosure statement threshold to 100 million dollars and the agency head waiver authority to 100 million dollars, both of which were still working through the rulemaking process as of this writing and are not yet final alongside the August 7 rescission rule.

How ProposalApp Helps

Cost accounting exposure is easy to lose track of when it depends on your company's size status, contract portfolio, and how individual task orders stack up against a shifting dollar threshold, not just a single number on one contract. When you build out your capability profile in ProposalApp, you can document your current small business size status, NAICS codes, and any 8(a) program timeline alongside your active pipeline, so you have a clear picture of where you stand relative to the new 35 million dollar applicability threshold as your revenue and awards grow. ProposalApp's Proposal Assistant also reads solicitations and task order requirements as you upload them, flagging cost accounting standards clauses, disclosure statement requirements, or certified cost or pricing data language so you know before you bid whether a specific opportunity is likely to carry CAS obligations. For joint ventures and teaming arrangements, use ProposalApp's teaming plan tools to model how a mentor protege or JV structure's expected award values compare against the new threshold before you finalize the agreement.

Sources

- [Federal Register: Conformance of Cost Accounting Standards to Generally Accepted Accounting Principles for Cost Accounting Standards 404, 408, 409, and 411](https://regulations.justia.com/regulations/fedreg/2026/07/08/2026-13764.html)
- [Federal Register: Increase of Monetary Thresholds and Other Matters Related to Cost Accounting Standards Program Requirements](https://www.federalregister.gov/documents/2026/03/20/2026-05511/increase-of-monetary-thresholds-and-other-matters-related-to-cost-accounting-standards-program)
- [CAS 404, 408, 409, and 411 Rescinded: A Government Contractor's FAQ on the CAS-to-GAAP Conformance Final Rule | Aprio](https://www.aprio.com/insights-events/a-government-contractors-faq-on-the-cas-to-gaap-conformance-final-rule-ins-article-gc/)
- [OFPP reduces, modernizes another 50-year-old acquisition policy | Federal News Network](https://federalnewsnetwork.com/acquisition-policy/2026/07/ofpp-reduces-modernizes-another-50-year-old-acquisition-policy/)