The FASB’s proposal to update the accounting standards for internal-use software development couldn’t have come at a better time. Agile software development has completely changed how companies build and implement technology, and the old rules just don’t reflect that anymore. By scrapping the outdated, sequential stages like the preliminary project stage and application development stage, the new guidance is a step toward simplifying the process. It’s also great to see the FASB align internal-use software rules more closely with those for externally marketed software—this consistency is a win. But here’s the catch: the new “probable-to-complete recognition threshold” and the concept of “significant development uncertainty” are going to require a lot of judgment, and that’s where things get tricky.

This new guidance won’t just be a plug-and-play change—it’s going to demand real thoughtfulness from accounting and finance teams. Determining when to capitalize costs based on whether there’s “significant development uncertainty” involves a lot of gray area, like evaluating novel functionality or shifting performance requirements. It’s not hard to imagine companies approaching this differently, which could lead to inconsistencies. To get ahead of this, accounting teams need to start thinking now about how they’ll document and support their decisions. Coordination with IT and strong project management will also be key to navigating these changes. Bottom line: while this update is sorely needed, it’s going to require careful planning to get it right when the time comes.

"During our 2021 agenda consultation, stakeholders expressed the desire for updated accounting guidance that better aligns with how software is developed," FASB Chair Richard Jones said in a news release. "The FASB's proposed changes are intended to improve the operability of the recognition guidance considering different methods of software development."

https://www.journalofaccountancy.com/news/2024/oct/accounting-software-guidelines-update.html