To obtain a copy of SOP (product no. JA), contact the AICPA order department at () NOTE Statements of Position on accounting. SOP is a Statement of Position, Accounting for the Costs of Computer Software Developed or Obtained for Internal Use, issued by the American Institute of. SOP – Since its arrival ten years ago, the AICPA’s SOP , “Accounting for the Costs of Computer Software Developed or Obtained for Internal Use,” has.

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AcSEC believes that it is impractical to allocate costs between internal-use software and software to be marketed. AcSEC believes that the distinction can be based on what the customer is buying. The Appendix of this SOP includes examples of computer software considered to be for internal use and thus not “part of a product or process.

The software is acquired, internally developed, or modified solely to meet the entity’s internal needs.

SOP brings uniformity to reporting start-up costs.

Some respondents to the exposure draft believe that capitalizing the costs of computer software developed or obtained for internal use frequently results in a subsequent writeoff of those costs when they are eventually determined to not be recoverable.

A pattern of deciding to market internal-use software during its development creates a rebuttable presumption that any software developed by that entity is intended for sale, lease, or other marketing, and thus is subject to the guidance in FASB Aicap No. This SOP is effective for financial statements for fiscal years beginning after December 15,and should be applied to internal-use computer software costs incurred in those fiscal years for all projects, including those projects in progress upon initial application of this SOP.

The guidance in this SOP should be applied to individual components or modules. Would the service be as timely or accurate without the software?

SOP 98-1 — Accounting for the Costs of Computer Software

Computer software to be sold, leased, or otherwise marketed includes software that is part of a product or process to be sold to a customer and should be accounted for under FASB Statement No. Entities should allocate the cost among all individual clements. Usually its contracts require an initial term of at least six months’ guaranteed usage sometimes 12 monthsthen there’s always a or day advance termination notice at the customer’s sole option.


Data conversion costs, except as noted in paragraph 21, should be expensed as incurred. AcSEC concluded that, from the perspective of the user of the software, solely extending the software’s useful life without adding additional functionality is a maintenance activity rather than an activity for which the costs should be capitalized.

An entity must meet both characteristics in paragraph 12 for software to be considered for internal use.

This SOP provides guidance on when costs incurred for internal-use computer software are and are not capitalized. Entities, at the start of both kinds of projects, often expect that existing technology will allow the entity to complete projects that will provide future benefits.

Sign In Sign Up. Determine the performance requirements that is, what it is that they need the software to do and systems requirements for the computer software project it has proposed to undertake.

AcSEC also believes that development risks associated with creating internal-use computer software are conceptually no different from development risks associated with creating other assets such as high-tech automated plants. However, if the software is used by the vendor in production of the product or in providing the service but the customer does not acquire the software or the future right to use it, the software is for internal use.

AICPA SOP & asc Accounting For Internal-Use Software

For example, should an entity make or buy the software? Internal and external training costs and maintenance costs should be expensed as incurred.

Explore alternative means of achieving specified performance requirements. Entities often license internal-use software from third parties. Once the capitalization criteria of the SOP have been met, external direct costs of materials and services consumed in developing or obtaining internal-use computer software; payroll and payroll-related costs for employees who are directly associated with and who devote time to the internal-use computer software project to the extent of the time spent directly on the project ; and interest costs incurred when developing computer software for internal use should be capitalized.


The SOP requires the following: Guidance on Applying Statement No. AcSEC further concluded that costs capitalized before the application of aicppa SOP should be subject to the impairment and amortization provisions in this SOP, but should not otherwise be adjusted to an amount that would have been capitalized had this SOP been applied.

SOP 98-5 brings uniformity to reporting start-up costs.

AcSEC believes that this method will provide a reasonable reporting outcome for instances in which enterprises find that internally developed software can meet a market demand.

New internal-use software developed or obtained that replaces previously existing internal-use software should be accounted for in accordance with this SOP. For purposes of this SOP, upgrades and enhancements are defined as modifications to existing internal-use software that result in additional functionality — that is, modifications to enable the software to perform tasks that it was previously incapable of performing.

In addition, AcSEC believes that the disclosures required by existing authoritative literature are sufficient to help users make informed decisions. However, external costs aicla to maintenance, unspecified upgrades akcpa enhancements, and costs under agreements that combine the costs of maintenance and unspecified upgrades and enhancements should be recognized in expense over the contract period on a straight-line basis unless another systematic and rational basis is more representative of the services received.

Given all the above factors, should I be capitalizing software development and amortizing, and if so, under which specific accounting standard? Please email content proformative.

Some respondents to the exposure draft believe that costs of computer software developed or obtained for internal use should be expensed as incurred. You can withdraw your consent at any time. In order to give its business customers access, my client incurs relatively minor software development expenses to customize a web-based interface between the customer’s software and its database.

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