PROJECT UPDATE
Accounting for and Disclosure of Software Costs
Last updated on September 27, 2023. Please refer to the Current Technical Plan for information about the expected release dates of exposure documents and final standards.
(Sections updated on the date above are indicated with an asterisk *)
On June 22, 2022, the Board discussed the pre-agenda research, including stakeholder feedback, on the accounting for and disclosure of software costs. The Board decided to add a project to its technical agenda to (1) modernize the accounting for software costs and (2) enhance the transparency about an entity’s software costs. The Board decided that the scope of the project is the recognition, measurement, presentation, and disclosure of costs to internally develop or acquire software, which encompasses all of the software costs currently subject to the guidance in Subtopics 350-40, Intangibles—Goodwill and Other—Internal-Use Software, and 985-20, Software—Costs of Software to Be Sold, Leased, or Marketed, for all entities.
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.
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:
A summary of the Board’s tentative decisions reached to date can be found here.
Last updated on September 27, 2023. Please refer to the Current Technical Plan for information about the expected release dates of exposure documents and final standards.
(Sections updated on the date above are indicated with an asterisk *)
Objective:
The objectives of this project are to (1) modernize the accounting for software costs and (2) enhance the transparency about an entity’s software costs.Background:
On December 15, 2021, in response to feedback received on the June 2021 Invitation to Comment, Agenda Consultation, FASB Chair Rich Jones added software costs to the research agenda as part of the Accounting for and Disclosure of Intangibles research project.On June 22, 2022, the Board discussed the pre-agenda research, including stakeholder feedback, on the accounting for and disclosure of software costs. The Board decided to add a project to its technical agenda to (1) modernize the accounting for software costs and (2) enhance the transparency about an entity’s software costs. The Board decided that the scope of the project is the recognition, measurement, presentation, and disclosure of costs to internally develop or acquire software, which encompasses all of the software costs currently subject to the guidance in Subtopics 350-40, Intangibles—Goodwill and Other—Internal-Use Software, and 985-20, Software—Costs of Software to Be Sold, Leased, or Marketed, for all entities.
Exposure Draft(s):
There are no exposure documents at this time.
There are no media releases or educational materials at this time.
Decisions Reached at Last Meeting (September 20, 2023):
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.
- Management commitment
- Identification of core capabilities
- Absence of unresolved high-risk development issues.
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:
- 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.
- To define only the activities that would be subject to capitalization (enhancements), and that all other costs would be expensed as incurred.
- To define enhancements as significant activities that add new functionality and specify that significance would be evaluated based on level of effort.
Tentative Board Decisions Reached to Date (as of September 20, 2023):
A summary of the Board’s tentative decisions reached to date can be found here.
The Board meeting minutes, handouts, and videos are provided for the information and convenience of constituents who want to follow the Board’s deliberations. All of the conclusions reported are tentative and may be changed at future Board meetings. Decisions become final only after a formal written ballot to issue a final standard.
The following are links to the minutes for each meeting. To view Board meetings and handouts from the past 90 days, click here.
The following are links to the minutes for each meeting. To view Board meetings and handouts from the past 90 days, click here.
| September 20, 2023* | Board Meeting—The Board discussed recent feedback received from a wide variety of stakeholders on the recognition of software costs. |
| April 5, 2023 | Board Meeting—The Board directed the staff to continue its research on the single model (previously referred to as the initial development cost model). |
| January 18, 2023 | Board Meeting—The Board directed the staff to further research the initial development cost model and the dual model. |
| June 22, 2022 | Board Meeting—The Board added a project to its technical agenda to (1) modernize the accounting for software costs and (2) enhance the transparency about an entity’s software costs. |
| April 13, 2022 | Board Meeting—The Board discussed the pre-agenda research performed to date, including stakeholder feedback received on software costs in response to the June 2021 Invitation to Comment, Agenda Consultation. |
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.
Aarika Friend
Senior Project Manager
afriend@fasb.org
Ashley Tisckos
Project Manager
atisckos@fasb.org
Katy Rossino
Practice Fellow
krossino@fasb.org
Corey Girard
Postgraduate Technical Assistant
cgirard@fasb.org
Sonja Kuranz
Postgraduate Technical Assistant
skuranz@fasb.org
Senior Project Manager
afriend@fasb.org
Ashley Tisckos
Project Manager
atisckos@fasb.org
Katy Rossino
Practice Fellow
krossino@fasb.org
Corey Girard
Postgraduate Technical Assistant
cgirard@fasb.org
Sonja Kuranz
Postgraduate Technical Assistant
skuranz@fasb.org
The staff has prepared this summary for information purposes only. Any Board decisions are tentative and do not change current accounting. Official positions of the FASB are determined only after extensive due process and deliberations.