Internal-use Software SOP Finalized
Internal-Use Software Statement Issued
Accounting practices for the costs of software used internally have been diverse, but a new SOP from AcSEC brings consistency to this multibillion-dollar niche. Accounting for the Costs of Computer Software Developed or Obtained for Internal Use requires that many costs to develop or obtain internal-use software be capitalized. The statement also helps clarify what is, and is not, internal-use software and retains an appendix from the ED listing examples.
According to Daniel J. Noll, technical manager, AICPA accounting standards, AcSEC made two key changes to the statement after the exposure period. (For more background, see AcSEC Software Proposal to Have Major Effect, JofA, Feb.97, page 11, and Internal-Use Computer Software: The Fixed Asset of the Information Age, JofA, Mar.97, page 14.) First, the effective date was pushed back a year to fiscal years beginning after December 15, 1998, to give entities more time to implement the new requirements. Second, we widened the scope to account for data conversion costs, which the ED did not address, said Noll. The statement generally requires these costs to be expensed as incurred. AcSEC realized that data conversion is a key element in the process of developing new software and that entities need guidance to account for those costs.
The final SOP also clarifies that costs incurred in developing internal-use computer software during the application development stage should be capitalized, as should costs to develop or obtain software that allows for access or conversion of old data by new systems. The statement says training costs are not internal-use software development costs and should be expensed as incurred.
When the SOP was exposed, there was some concern the draft would not receive sufficient attention because companies affected by it might be unaware of its significance. According to Noll, however, AcSEC received about 130 comments and numerous calls about the SOP.
For information on the tax implications of internal-use software, see Internal-Use Software and the Research Credit, page 31.
To order the SOP, call the AICPA order department at 800-862-4272.
