Cost Accounting· · 7 min read
Does CAS Apply to Small Businesses? The 2026 Threshold Change Explained
The CAS threshold jumped from $2.5 million to $35 million on October 1, 2026. Here's what Cost Accounting Standards are, why small businesses are exempt, and what still applies to your books: FAR Part 31 and the SF-1408.
If you run a small government contracting business, you have probably seen the headlines: the Cost Accounting Standards threshold just jumped from $2.5 million to $35 million. This guide explains whether the change affects a small contractor, and what to keep doing either way.
The short version: CAS does not apply to contracts with small businesses, and it did not before the change either. What does apply on cost-type work are the FAR Part 31 cost principles and the accounting system review behind the SF-1408. The new thresholds matter most to companies that outgrow small business status.
What CAS is, in plain terms
The Cost Accounting Standards (CAS) are a set of rules, issued by the Cost Accounting Standards Board, for how a contractor measures, assigns, and allocates costs on certain large negotiated government contracts. They sit on top of normal accounting. A CAS-covered contractor has to follow its own disclosed practices consistently and, above a certain size, describe those practices in writing in a Disclosure Statement.
Consistency is the reason CAS exists. Paul Calabrese, a former DCAA auditor (GRF CPAs & Advisors), explained the history in one of our DCAA Ready sessions:
"That was why you may have heard of the cost accounting standards was developed back in the 1970s, was a lot of companies would just keep changing their cost structure to be more profitable, and that did not make the government happy."
Paul Calabrese, a former DCAA auditor (GRF CPAs & Advisors)
What changed on October 1, 2026
On September 1, 2026, the CAS Board published two final rules, both effective October 1, 2026: 91 FR 56056, which raises the monetary thresholds, and 91 FR 56061, which rescinds CAS 407, the standard on standard costs for direct material and direct labor, because the Board concluded GAAP now covers that ground.
| Rule | Before October 1, 2026 | From October 1, 2026 |
|---|---|---|
| Negotiated contracts exempt from CAS | $2.5 million or less | $35 million or less |
| Trigger contract that pulls smaller awards into CAS | $7.5 million | Eliminated |
| Full CAS coverage | $50 million | $100 million |
| Disclosure Statement requirement | $50 million | $100 million |
| Agency head waiver without CAS Board approval | Up to $15 million | Up to $100 million |
| CAS 407 (standard costs for direct material and labor) | In effect | Rescinded |
| Contracts and subcontracts with small businesses | Exempt from all CAS | Exempt from all CAS |
The rule also settles how to measure value on indefinite delivery contracts. For a multiple-award IDIQ, the exemptions are applied order by order, using each task or delivery order's ceiling. For a single-award IDIQ, they are applied once, using the ceiling of the whole contract.
Does CAS apply to small businesses?
No. Under 48 CFR 9903.201-1(b), contracts and subcontracts with small businesses are exempt from all CAS requirements. The CAS Board says so directly in the threshold rule: its rules do not affect small entities, because those contracts are already exempt.
The same section lists other exemptions that apply at any size, including:
- Sealed bid contracts.
- Contracts for commercial products or commercial services.
- Firm-fixed-price contracts awarded on adequate price competition without certified cost or pricing data.
- Negotiated contracts of $35 million or less (the new threshold).
Who the new threshold actually helps
The CAS Board's own impact analysis names the group that benefits most: mid-size companies that no longer qualify as small businesses. Before October 1, a company that grew past its size standard could land in CAS with a negotiated contract above $2.5 million. Now, a negotiated contract has to exceed $35 million before CAS comes into play, and full coverage with a Disclosure Statement starts at $100 million.
Below $100 million, a CAS-covered contract usually gets modified coverage, which applies four standards: CAS 401 and 402 (consistency in estimating, accumulating, and reporting costs), CAS 405 (unallowable costs), and CAS 406 (cost accounting period).
If your company is approaching the end of its small business status, this is the change to put on your calendar. Try the check below to see where a specific contract lands:
CAS vs. FAR Part 31 vs. DCAA: what still applies to you
Small contractors often treat CAS, FAR Part 31, and DCAA as one thing. They are three different layers, and only the first one just changed for most companies.
| What it is | When it applies to a small business | |
|---|---|---|
| CAS (48 CFR Chapter 99) | Standards for measuring, assigning, and allocating costs consistently, plus a Disclosure Statement at larger sizes | Not at all while you are a small business on the contract |
| FAR Part 31 cost principles | Rules on which costs are allowable, allocable, and reasonable | When costs are analyzed to price a contract, and when a contract clause makes costs reimbursable, such as cost-reimbursable and T&M work |
| DCAA accounting system review (SF-1408) | A review of whether your accounting system can segregate and accumulate costs by contract | Commonly before the award of a cost-reimbursable contract |
FAR 31.000 sets that scope: the cost principles apply to pricing whenever cost analysis is performed, and to the allowance of costs when a contract clause requires it. That is why a small contractor with no CAS exposure still needs to separate unallowable costs, track time by contract, and keep indirect rates consistent. The same consistency applies outside CAS. Paul Calabrese, the former DCAA auditor quoted above, made this point in the same session: each contractor can choose its own cost structure, but once it chooses one, it has to apply it consistently.
We cover what the accounting system review checks in What Is the SF-1408?, and how the reviews line up by contract type in Which DCAA Audit Will You Actually Face?.
What could change next
The thresholds may not be the last move. A September 14, 2026 memo from the Deputy Secretary of War, "Fostering One Strong Industrial Base," directs the Department to submit proposals to the CAS Board within 60 days to make CAS exemption the default, with remaining coverage limited to cost-based development contracts of major scale awarded without adequate price competition. Until the Board acts, the memo also requires written approval from the Under Secretary of War for Acquisition and Sustainment before any Department solicitation that could bring a business unit newly under full CAS coverage. Those proposals are not rules. Until the CAS Board acts, the October 1 thresholds are the ones that apply, and our GovCon Updates page will show any change as it is published. We cover the rest of that memo in Is DCAA Going Away?
How WiseCost helps
CAS is about consistency at scale. The layers that apply to a small contractor today, FAR Part 31 and the SF-1408 review, rest on the same foundation: hours recorded by contract, labor cost distributed the same way every pay period, and indirect costs kept in their pools.
WiseCost connects to QuickBooks Online and handles that foundation. Employees log time daily by contract with manager approval, WiseCost distributes labor cost and posts the journal entry back into QuickBooks with an audit trail, and you can see fully loaded cost by contract. If you grow into CAS later, you will already have consistent, documented practices to build on.
FAQ
The Bottom Line
The new CAS thresholds are good news, mostly for mid-size contractors that have outgrown small business status. For a small business, CAS did not apply before October 1 and does not apply now. What applies is the work underneath it: allowable costs under FAR Part 31, time tracked by contract, and an accounting system that can pass an SF-1408 review when cost-reimbursable work comes along.
WiseCost offers a 14-day free trial, no credit card required. You can also run our free DCAA Readiness Self-Assessment to see where your books stand today, or book a demo to see labor distribution by contract built from your own QuickBooks Online data.