FASB Nixes Single Software Accounting Standard

Auditors sought a single principle for accounting of software costs. But after months of consideration, the Financial Accounting Standards Board (FASB) is shelving the project.

FASB announced current guidance will remain in place. Board members “decided not to further pursue a single model for recognition and measurement of software costs, which [FASB] had discussed previously, and decided not to make targeted improvements [to the existing guidelines] for recognition and measurement.”

Generally accepted accounting principles (GAAPs) include two accounting standards for software costs — one for software to be sold, leased or marketed, and one applied to software used in-house, often for development of cloud platforms to store data. The first principle went into effect in 1985 and the second in 1998.

Industry Pros Advised Against Big Changes

Auditors had complained to FASB that the guidelines are vague and don’t make sense in some cases. For example, a company is advised to report costs associated with software that’s developed in-house as incurred expenses. But for software that’s acquired from another party, costs may be capitalized at fair market value.

But in recent months, investors and tax preparers urged FASB to scrap a streamlined GAAP. The board previously revised the principles in 2018.