FASB asked to modernize software cost guidance

Hot Topic | February 2022

Preparers, others suggest improvements to software development costs guidance for internal- and external-use software.

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Respondents to the FASB’s Invitation to Comment (ITC) have requested changes to address agile software development and the increasingly blurred lines between internal- and external-use software.

Applicability

  • Companies that undertake internal- and/or external-use software development

Key impacts

  • Changing US GAAP accounting for software development costs was named a priority by many respondents to the ITC. 
  • Respondents suggested the FASB revise the cost capitalization guidance to conform with agile software development.
  • Respondents also suggested that the cost capitalization guidance in US GAAP should not differ so wildly for internal- and external-use software. 
  • Respondents were split between recommending:
    • that no distinction should exist between internal- and external-use software; and
    • aligning the guidance for software that is licensed to customers and software that is used by customers only on a hosted basis, but retaining a separate model for ‘true’ internal-use software.

Report contents

  • Introduction and background
  • Key impacts
  • Existing guidance not suited to agile software development
  • Divergent internal- and external-use software accounting models

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Hot Topic: Software costs

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