FASB Amends Guidance on the Accounting for and Disclosure of Software Costs

The FASB has released Accounting Standards Update (ASU) No. 2025-06, Targeted Improvements to the Accounting for Internal-Use Software, which amends certain aspects of the accounting for and disclosure of software costs under ASC 350-40. The amendments also supersede the guidance on Web site development costs in ASC 350-50 and relocate that guidance, along with the recognition requirements for development costs specific to Web sites, to ASC 350-40. Although the ASU makes targeted improvements to ASC 350-40, it does not fully align the framework for accounting for internally developed software costs that are subject to ASC 350-40 with the framework applied to software to be sold or marketed externally that is subject to ASC 985-20. The Board also chose not to amend the guidance on costs of software licenses that are within the scope of ASC 985-20.

The ASU’s amendments “are effective for all entities for annual periods beginning after December 15, 2027, and interim reporting periods within those annual reporting periods. Early adoption is permitted as of the beginning of an annual reporting period.”

For more information, see the press release on the FASB’s Web site.