FASB introduces new framework for software costs

FASB’s proposal to simplify guidance on software costs presents promising change says Allison M. Henry, VP of Professional and Technical Standards, who contributed to the Accounting Today article: “Given that software development has moved away from traditional models to more iterative or agile methods since the guidance was first issued, updating these guidelines to reflect present practices is likely to simplify financial reporting and decrease variations in practice.” With a continued finger on the pulse of relevant and important regulatory and compliance trends in the #accounting profession, the PICPA is proud to continue to share insights and advocate for smart, sensible updates. Accounting Today premium subscribers can read the full story here: https://loom.ly/W0c9unI

The Financial Accounting Standards Board is poised to (finally) release an accounting standards update on software development costs 🙌 This guidance has been around for 35+ years and software development isn't quite the same as it was when Back to the Future came out. (Let me know if you want to fund a Back to the Future sequel where Marty McFly time travels to convince the FASB to update software development expenses sooner) One of the biggest changes has been agile software development where an initial iteration of the software is completed first and then continues to evolve and expand over time. That's great for technological advancement but no so great for the accounting standards which haven't had a significant update in decades 👴 That's because the accounting for software development is highly dependent on the stage of development that you are in (i.e., initial research vs. building software vs. post-implementation, etc.). Last week, the FASB voted to change the model for internal-use software (i.e., software that companies use for their own operations) to: ❌ move away from a dependence on the stage of development and ✔ instead begin capitalizing costs when the project is approved and it is probable that the project will be completed. I think this is an improvement over the current model due to it's simplicity. However, I do think the FASB missed an opportunity to overhaul all software costs (accounting for software to be sold is not changing). Maybe they'll make that change in another 35 years 🤷♂️ Are you a fan of the FASB's decision?

Stages Out, Simplicity In: Financial Accounting Standards Board 's New Proposal on Internal-Use Software Accounting! With the rise of agile development and modern technology, it’s time to ditch the old stage-based approach and embrace updates that better reflect how software is developed today. Here’s what’s proposed: 💡 Modernization: Streamlined accounting rules for internal-use software (Subtopic 350-40) that align with contemporary methods. 💡 Transparency: Improved visibility into cash flows tied to software costs for smarter investor insights. 💡 Clarity: Simplified guidance that brings website development costs under the same umbrella. 👀 Want to weigh in? The comment deadline is January 27, 2025. Let’s shape the future of software cost accounting together! What are your thoughts? Is this the software upgrade we’ve been waiting for? Drop your insights below! #GAAP #standardsthatwork #FASB

Tech companies must carefully manage software development costs under ASC 985-20 (external software) and ASC 350-40 (internal use). FASB’s proposed updates aim to modernize ASC 350-40, easing capitalization criteria but adding stricter thresholds. These changes could reshape financial reporting, emphasizing strategic decision-making and transparency.

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FASB proposes targeted improvements to software cost accounting rules, emphasizing transparency and modernization. 💻 Key changes include clarifying R&D expense classification and refining capitalization thresholds for nonlinear software development. #SoftwareDevelopment #FASB

Tech companies must carefully manage software development costs under ASC 985-20 (external software) and ASC 350-40 (internal use). FASB’s proposed updates aim to modernize ASC 350-40, easing capitalization criteria but adding stricter thresholds. These changes could reshape financial reporting, emphasizing strategic decision-making and transparency.

Proposed amendments to Subtopic 350-40, Intangibles — Goodwill and Other — Internal-Use Software, spell out that a company would be required to start capitalizing software costs when both of the following occur: ✔️ Management has authorized and committed to funding the software project. ✔️ It is probable the project will be completed and the software will be used to perform the function intended (referred to as the "probable-to-complete recognition threshold"). In evaluating the threshold, a company may have to consider whether there is significant uncertainty associated with the software's development activities. Learn more 👉 https://buff.ly/4egVaaC #accounting #accountingstandards #FASB software

Properly accounting for software development costs is a crucial consideration for technology companies. In this #AnchiAlert, Kiriaki G., CPA, provides an in-depth analysis of ASC 985-20 and ASC 350-40, shedding light on current practices and proposed updates that could significantly impact financial reporting and strategic planning for technology companies. https://lnkd.in/ei8zTFgS

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