Plan for new accounting rules on software costs moves forward

livemint.com:

U.S. companies may need to report cash amounts tied to their software expenditures, more of which would be moved off corporate balance sheets under a forthcoming proposal to update decades-old accounting rules. The Financial Accounting Standards Board voted Tuesday, 7-0, to propose requiring companies to report cash amounts tied to their software costs and help them determine when to expense or capitalize costs.

The proposal is a scaled-back version of rule-making around these expenses. The standard setter wants to require U.S. public and private companies to provide a line item in their cash-flow statement to account for cash spending on software.

Rules around software costs have gone largely unchanged since the 1980s and 1990s. The proposal would cover use of software ranging from enterprise resource planning systems to hosting services and mobile banking applications, meaning it applies to almost every company. It would exclude development of software licensed to customers.

Under the plan, companies would no longer have to evaluate the stage of their software project to determine whether to expense the costs on the income statement or to capitalize, or delay fully recognizing them, on the balance sheet. Companies are now required to expense their software costs as incurred on the income statement during the initial planning and post-implementation stages. When building the programs or applications, companies have to capitalize eligible costs.