Accounting for software: FASB proposes amendments to its guidance

FASB published a proposed Accounting Standards Update (ASU) that features new guidance on how companies should account for internal-use software.

Proposed amendments to Subtopic 350-40, Intangibles — Goodwill and Other — Internal-Use Software, spell out that a company would be required to start capitalizing software costs when both of the following occur:

• Management has authorized and committed to funding the software project.
• It is probable that the project will be completed and the software will be used to perform the function intended (referred to as the “probable-to-complete recognition threshold”). In evaluating the threshold, a company may have to consider whether there is significant uncertainty associated with the software’s development activities.

The proposed amendments also would require a company to separately present cash paid for capitalized internal-use software costs as investing cash outflows in the statement of cash flows.

“During our 2021 agenda consultation, stakeholders expressed the desire for updated accounting guidance that better aligns with how software is developed,” FASB Chair Richard Jones said in a news release. “The FASB’s proposed changes are intended to improve the operability of the recognition guidance considering different methods of software development.”

Public comments on the proposed ASU should be submitted by Jan. 27, 2025.

In addition, FASB is seeking comments by Nov. 14 on a proposed ASU to improve guidance for share-based consideration payable to a customer in conjunction with selling goods or services and is seeking comment by Nov. 25 on a proposed ASU that would clarify certain aspects of guidance on hedge accounting.

— To comment on this article or to suggest an idea for another article, contact Bryan Strickland at Bryan.Strickland@aicpa-cima.com.