OMB Rescinds CAS 407 to Align with GAAP
Plain-English Summary
The final rule formally rescinds Cost Accounting Standard 407, which required the use of standard costs for direct material and labor. It also relocates one of the standard's definitions to a different spot in chapter 99 of title 48 of the CFR. The action follows a notice of proposed rulemaking published in the Federal Register (91 FR 13562). The rule is now effective as a final agency action.
Current Status
This is a final rule published on September 1, 2026.
What This Means
By rescinding CAS 407, the OMB removes the mandatory use of standard costing for direct material and labor in federal contracts, allowing contractors to apply GAAP instead. The relocation of a definition within 48 CFR part 99 is a purely editorial change that updates the regulatory text without altering substantive requirements. Contractors no longer need to maintain separate standard‑cost records for those cost elements, simplifying accounting practices. The change ensures that federal cost accounting aligns with the broader private‑sector accounting framework, reducing inconsistencies between federal and non‑federal contracts.
Who Is Affected
Defense and civilian federal agencies that procure goods and services using cost‑type contracts are directly impacted, as they must adjust contract clauses referencing CAS 407. Contractors who previously complied with the standard—especially in aerospace, defense, and construction sectors—will change their accounting systems to follow GAAP. Auditors and oversight bodies will need to update compliance checklists to reflect the rescission.
Background
CAS 407 was originally adopted to promote uniformity in cost estimation by requiring standard costs for direct material and labor. Over time, the divergence between CAS and GAAP created administrative burdens and potential conflicts for contractors operating under both regimes. The OMB and the Cost Accounting Standards Board identified this misalignment as a problem, prompting a proposed rule published in the Federal Register (91 FR 13562) to repeal the standard and harmonize federal accounting with GAAP.
Arguments For
Eliminating CAS 407 reduces duplication of effort and cost for contractors who already follow GAAP, streamlining financial reporting. Aligning federal cost accounting with GAAP improves comparability of financial data across public and private sectors, supporting better oversight and decision‑making.
Arguments Against
The abstract does not indicate significant controversy; no substantive objections were noted in the notice of proposed rulemaking.
Economic Considerations
Because the rule simply removes a requirement, the OMB expects modest cost savings for contractors who no longer must maintain separate standard‑cost records, though no formal cost‑benefit analysis is provided. Federal agencies may incur short‑term administrative costs to revise contract templates and training materials. Overall fiscal impact is likely small and positive, but precise estimates are unavailable without an official OMB analysis.
Sections beyond the plain-English summary are AI-synthesized analysis based on the sourced Federal Register filing, read, edited where needed, and approved by a human editor before publication. Full methodology: Editorial & Methodology.
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