FASB issues proposed ASU on software cost accounting

• Change the cost capitalization threshold by:
  
  • eliminating accounting consideration of software project development stages; cost capitalization would begin when (1) management has authorized and committed to funding the project and (2) it is ‘probable’ the project will be completed and the software will be used to perform its intended function; and 
  • enhancing the guidance around the ‘probable-to-complete’ threshold (given its proposed new prominence) and providing new examples in ASC 350-40 to illustrate its application. 

• Specify that financial statement presentation of cash outflows for capitalized internal-use software be presented as a separate item in the investing section of the cash flow statement.
  
• Modify the website development costs guidance by eliminating ASC 350-50 and moving any remaining relevant guidance and a new example into ASC 350-40.

The proposed ASU does not propose changes to:

• the existing accounting requirements for external-use software (i.e. software to be sold or licensed)
• what internal-use software costs can be capitalized (e.g. data conversion/migration, training and software maintenance costs would continue to be expensed as incurred)
• when internal-use software cost capitalization ceases (i.e. when the software is ‘substantially complete and ready for its intended use’).