CAS 406 provides four exceptions to the general rule that the cost accounting period is the contractor’s fiscal year. These exceptions occur when:

1. An indirect function exists for only part of a cost accounting period. Examples include a planned computer facility put on line in the seventh month of the year or decentralization of some functions during the last quarter resulting in new levels of supervision. The costs of such indirect functions may be allocated for those periods if the costs are (a) "material in amount" (b) "accumulated in a separate indirect cost pool" or (c) "allocated on the basis of an appropriate direct measure of activity or output of the function during that part of the period." The standard provides an example of an acceptable treatment where a new computer service center represents material amounts of costs, is separately accounted for and the costs are allocated during the 8-month period on an appropriate output basis. The standard does not require that every function in existence for part of the year be allocated over shorter periods, only that the contractor may do so.

2. The contractor has an "established practice" of using a cost accounting period other than the fiscal year. A typical example would be a "model year."

3. The contractor changes its fiscal year and must use a transition period. When it changes its fiscal year the contractor may choose among three transitional cost accounting periods: (a) short period – from the end of the contractor’s prior cost accounting period to the start of the new accounting period where this period is less than a year (b) long period – longer than a year but no more than fifteen months where this period is obtained by adding the short period to the contractor’s prior cost accounting period (c) long period – also longer than a year but no more than fifteen months where it is obtained by adding the short period to the contractor’s next cost accounting period. An illustration is provided in the standard where a calendar year is changed to a 12 month period ending May 31. This five month transition period may be used as a transitional cost accounting period but it may not be added to either the prior or next period because it would be longer than 15 months.

4. The Renegotiation Board regulations require use of a different cost accounting period.

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