AICPA SOP 98 1 PDF

Vogrel Internal costs incurred for maintenance should be expensed as incurred. About two-thirds of the respondents to the exposure draft believe that the internal and external costs of computer software developed or obtained for internal use should be reported as assets. In light of such apparently high costs, modest benefits, and the view of some users that such costs should be expensed, AcSEC chose to analogize to advertising costs and FASB Statement No. If, during the development of internal-use software, an entity decides to market the software to others, the entity should follow FASB Statement No. Moreover, certain users commented that they believe that overhead costs had little relationship to the value of software.

Author:Vizil Zulkishakar
Country:Angola
Language:English (Spanish)
Genre:Marketing
Published (Last):17 February 2009
Pages:447
PDF File Size:5.72 Mb
ePub File Size:20.12 Mb
ISBN:785-9-73193-252-2
Downloads:69520
Price:Free* [*Free Regsitration Required]
Uploader:Tagul



However, things are not always as they appear. The SOP applies to all nongovernment entities and must be adopted for fiscal years beginning after December 15, , although earlier adoption is encouraged. The objective here is to focus not on the requirements of SOP but, rather, on its intent in some of the tricky areas that will require management and auditor judgment.

For software to be considered for internal use, the SOP requires that during its development or modification no substantive plan exists or is being developed to market the software externally. If an entity has or is working on such a plan, it must account for the software costs in accordance with FASB Statement no.

Software costs capitalized under Statement no. In fact, some have criticized this FASB statement for giving entities the ability to expense as incurred almost all costs of software to be marketed. SOP emphasizes substance over form. An entity should not casually say it has or is developing a marketing plan simply to follow Statement no.

Rather, the entity must show it has or is working on a substantive plan to market the software. Because most well-managed companies look for ways to recoup internal-use software costs, routine studies and inquiries about recouping costs are not considered substantive marketing plans under the SOP.

In those instances, entities should treat the software as internal use and follow the guidance in SOP The SOP says the entity must apply Statement no. An entity conceivably could follow SOP in the early stages of development to capitalize more costs and thus show less expense and then, later in the development cycle, decide to sell the software. Such situations should be unusual occurrences. At the start of software development projectswhich often cost millions of dollarsmanagement normally has already determined whether it should market the resulting applications.

Therefore, in most cases, an entity would apply SOP or Statement no. One typical activity an entity performs during this stage is determining whether the technology exists to develop the software. One might compare this to determining whether the technology and tools exist to build a state-of-the-art, high-tech manufacturing plant.

If the technology does not exist to develop the internal-use software, a project would not leave the preliminary stage because it would be considered similar to a research and development effort. The existence of technology question is different from the issue of whether management believes it has the right talent to do the job or whether it will be able to fund the project in the event of cost overruns.

Management rarely authorizes an internal-use software project without knowing whether the technology exists to develop the software. The existence-of-technology question should, therefore, rarely prevent internal-use software projects from entering the capitalization stage. A litmus test is whether management would go before its board of directors, owners, investors and creditors and say it is not sure whether the technology exists for a multimillion dollar internal-use software project but that it wants to proceed with the project anyway.

Many of the comment letters the AICPA received on the exposure draft said entities could have difficulty dividing internal software development efforts between maintenance and upgrades. To address this concern, SOP gives entities an out when the upgrades are insignificant: Entities that cannot separate internal costs on a reasonably cost-effective basis between maintenance and relatively minor upgrades and enhancements should expense such costs as incurred.

This idea is already imbedded in the general notion of materiality that applies to all technical literature. Entities that embark on projects to develop internal-use software upgrades that are not relatively minor or are material must separate the internal costs between maintenance and upgrades. Entities should determine their own materiality thresholds.

The purchase price may cover some or all of the features the seller provides. Entities must allocate the purchase price among the individual package elements based on objective evidence of their fair values. Even if the contract breaks out the purchase price by element, that itemization still may not be a good enough measure of fair value because some sellers may be willing to break out the purchase price any way just as long as they get their price.

Entities should effectively expense training, maintenance, most kinds of data conversion, unspecified upgrades and reengineering costs as they are incurred. The true software element should be capitalized in accordance with SOP Eligible employees are those who help build the software, including, for example, programmers and end users who test the software. Eligible employees do not include administrative assistants, because they are not involved directly with the development effort.

SOP says external direct costs of materials and services consumed in developing or obtaining internal-use software should be capitalized. It says further that entities should not capitalize overhead costs even if management believes the overhead is incremental to the software project. For example, entities that rent facilities to house programmers devoted to new or upgraded software projects should not capitalize costs rent, security or building maintenance related to those facilities as part of the software asset.

The SOP cautions that internal-use software often has a relatively short useful life. Simply put, entities should not amortize Windows 95 over a year life, given the frequency of upgrades to the Windows operating system. In those instances, SOP requires entities to capitalize the acquisition price. Content development costs usually are greater than software costs for a Web site. Content development costs deemed to be advertising costs should be accounted for under SOP , Reporting on Advertising Costs.

Otherwise, entities will have a tough time finding authoritative support for capitalizing content development costs. SOP provides a reasonable way to report those benefits as assets. Now it is up to CPAs to use good judgment when reporting those assets. Internal-use software is software an entity has no substantive plans to market externally. The entity must show it has or is working on a substantive plan to market the software. To make this easier, the SOP gives entities an out when upgrades are insignificant.

When an entity cannot separate the costs, it should expense them as incurred. Training, maintenance and most kinds of data conversion should be expensed as incurred. The true software element should be capitalized according to SOP Official positions are determined through specific committee procedures, due process and deliberation. Latest News.

SANKHYA KARIKA SANSKRIT PDF

Website Development Costs, ASC 350

.

ADHYATHMA RAMAYANAM MALAYALAM PDF

AICPA Statements of Position

.

Related Articles