Tentative Board decisions are provided for those interested in following the Board’s deliberations. All of the reported decisions are tentative and may be changed at future Board meetings.

Wednesday, September 20, 2023 FASB Board Meeting

Accounting for and disclosure of software costs. The Board discussed recent feedback received from a wide variety of stakeholders on the recognition of software costs. The Board made the following tentative decisions.

Starting Threshold for Capitalization

The Board generally expressed support for the staff continuing research on a model that would require capitalization of software costs to begin at the point when the software project is probable of being completed.

When evaluating whether the software project is probable of being completed, an entity would be required to evaluate and meet all of the following criteria:

  1. Management commitment
  2. Identification of core capabilities
  3. Absence of unresolved high-risk development issues.
Additionally, an entity would need to consider its past experience for similar types of software when evaluating each criterion.

The Board decided not to further research incorporating cost recoverability as part of recognition.

Unit of Account

The Board generally expressed support for defining the unit of account as a software project, which may consist of one or more activities that together will achieve an overall objective.

Ending Threshold for Capitalization

The Board decided to set the ending threshold for capitalization of software costs (and when amortization of capitalized software costs would begin) as when both the software project is substantially complete (that is, after all substantial testing is completed) and the software is placed into service.

Subsequent Activities

The Board decided the following on subsequent activities:

  1. When it is not clear that subsequent activities are a new software project under the unit of account definition, an entity would evaluate the direction and level of dependency between the existing software and the new software.
  2. To define only the activities that would be subject to capitalization (enhancements), and that all other costs would be expensed as incurred.
  3. To define enhancements as significant activities that add new functionality and specify that significance would be evaluated based on level of effort.
Next Steps

The Board directed the staff to (1) perform targeted investor outreach and (2) explore whether targeted improvements could be made to existing software costs guidance to reflect how that guidance should be applied in an agile software development environment.