Dive Brief:
- The Financial Accounting Standards Board’s proposal to update generally accepted accounting principles for so-called “internal-use software” (ASC 350-40) drew 32 comment letters during the public feedback period ended Monday.
- The letters included responses from Big tech firms like Apple and Salesforce as well as financial services companies such as American Express, and Bank of America along with accounting firms of all sizes including the Big Four.
- While a number of the respondents suggested some changes, many like Apple also expressed general support for the broader effort to update the guidance that has been untouched for decades. “We support the principles behind the targeted improvements that will modernize the accounting for internal-use software and establish guidance that is not likely to become quickly obsolete,” Apple’s Principal Accounting Officer Chris Kondo wrote in a Jan. 17 letter to FASB Technical Director Jackson Day.
Dive Insight:
The FASB sought feedback after publishing the relatively narrow new guidance proposal in October. It details when companies should begin capitalizing costs on certain types of software, including software as a service [SaaS], but the grouping would not include licensed software, CFO Dive previously reported.
Currently there are two principal standards that govern accounting for software development under U.S. GAAP, according to Scott Muir, a partner in KPMG’s national office.
One, which is now being proposed for a change, is accounting for so-called internal use software (ASC 350-40), that is developed for true internal use (for example, ERP or HR systems) or to be sold to customers who access it on the web or via the cloud rather than by downloading the product, he said. The second is accounting for external-use software (ASC 985-20), which generally covers software that is licensed to customers and can be downloaded, he said.
If finalized, the FASB’s new proposal for Intangibles—Goodwill and Other—Internal-Use Software would mark the first time that this element of generally accepted accounting principles has been updated since it was issued in 1998, according to Scott Muir, a partner in KPMG’s national office. But the accounting guidance for external-use software, which has not been updated since its issuance in the mid 1980s, would stay the same, Muir said.
Despite the historical nature of the changes intended to modernize GAAP, the new accounting is not expected to affect all types of companies. “For most companies, this won’t be a huge change,” Muir said. However, he said it will be most likely to impact Software as a Service (SaaS) vendors.
KPMG, like many accounting firms and others that provided feedback during the comment period, generally supported the FASB’s goal of modernizing internal-use software guidance which it did in part by removing the accounting guidance’s references to software development stages.
But in its Jan. 24 comment letter to the FASB, KPMG suggested that the proposed ASU be changed to more closely align with guidance for external software. One of the proposed suggestions would be to require “that entities subject to Subtopic 350-40 resolve significant development uncertainty by establishing the ‘technological feasibility’ of the software in accordance with Subtopic 985-20.”
