The Financial Accounting Standards Board decided to pursue targeted improvements to its rules for accounting for and disclosing software costs, instead of a single overarching model.
During a meeting Wednesday, board members and staff discussed research done by the staff and the direction of the project, which had initially set a goal of providing a single model for recognition and measurement of software costs. Instead, FASB decided to pursue targeted improvements to the rules under Subtopic 350-40, "Intangibles — Goodwill and Other — Internal-Use Software," according to a
Specifically, FASB decided to specify that the costs of software that has unresolved high-risk development issues would be accounted for as research and development expenses in accordance with Subtopic 730-10, "Research and Development — Overall."
The standard-setters are also going to clarify the starting capitalization threshold for nonlinear software development, including removing the requirement for an entity to evaluate the preliminary project stage and application development stage when determining the starting point for capitalization. FASB will require entities to consider significant unresolved development uncertainties if it's unclear that it's probable that a project will be completed and the software will be used to perform the intended function.
However, FASB decided against further pursuing a single model for recognition and measurement of software costs, which it had previously discussed. It also decided not to make targeted improvements for recognition and measurement to Subtopic 985-20, "Software — Costs of Software to Be Sold, Leased, or Marketed."
Based on feedback from investors and preparers, FASB decided to hold off on making radical changes in the standards.
"Going into this I certainly was looking for a way we could align accounting, but it seems like, for software and particularly for where we are with the investment community, it's a bridge too far at this point in time," said FASB chair Richard Jones, according to
Nevertheless, FASB asked its staff members to explore disclosures about software accounted for under Subtopic 350-40 and Subtopic 985-20, and whether incremental improvements could be made to further improve transparency about an entity's software costs.
