FASB Releases Proposed ASU on Internal-Use Software

The FASB has issued a proposed ASU that would make targeted amendments to the guidance on internal-use software in ASC 350-40. Specifically, the proposal would, among other changes, “remove all references to a prescriptive and sequential software development method (referred to as ‘project stages’).” The proposed amendments are being released in response to stakeholder feedback indicating that entities were finding it difficult to differentiate between project stages, given that more modern software development methods often tend to be “incremental and iterative” (e.g., agile) rather than prescriptive and sequential (e.g., a waterfall). In addition to enhancing the transparency of an entity’s cash flows, the proposal would be expected to reduce diversity in practice by specifying the criteria under which an entity “would be required to start capitalizing software costs.”

Comments on the proposed ASU are due by January 27, 2025. For more information, see the press release on the FASB’s Web site.