Plan for New Accounting Rules on Software Costs Moves Forward (wsj.com) 35
U.S. companies may need to report cash amounts tied to their software expenditures, more of which would be moved off corporate balance sheets under a forthcoming proposal to update decades-old accounting rules. From a report: The Financial Accounting Standards Board voted Tuesday, 7-0, to propose requiring companies to report cash amounts tied to their software costs and help them determine when to expense or capitalize costs. The proposal is a scaled-back version of rule-making around these expenses. The standard setter wants to require U.S. public and private companies to provide a line item in their cash-flow statement to account for cash spending on software. Rules around software costs have gone largely unchanged since the 1980s and 1990s.
The proposal would cover use of software ranging from enterprise resource planning systems to hosting services and mobile banking applications, meaning it applies to almost every company. It would exclude development of software licensed to customers. Under the plan, companies would no longer have to evaluate the stage of their software project to determine whether to expense the costs on the income statement or to capitalize, or delay fully recognizing them, on the balance sheet. Companies are now required to expense their software costs as incurred on the income statement during the initial planning and post-implementation stages. When building the programs or applications, companies have to capitalize eligible costs. These current requirements involve significant judgment for companies, creating higher compliance costs. Instead, companies would only have to determine when to begin capitalizing software costs based on executives' signoff for a project and the likelihood that the project will be completed and the software will carry out its intended use.
The proposal would cover use of software ranging from enterprise resource planning systems to hosting services and mobile banking applications, meaning it applies to almost every company. It would exclude development of software licensed to customers. Under the plan, companies would no longer have to evaluate the stage of their software project to determine whether to expense the costs on the income statement or to capitalize, or delay fully recognizing them, on the balance sheet. Companies are now required to expense their software costs as incurred on the income statement during the initial planning and post-implementation stages. When building the programs or applications, companies have to capitalize eligible costs. These current requirements involve significant judgment for companies, creating higher compliance costs. Instead, companies would only have to determine when to begin capitalizing software costs based on executives' signoff for a project and the likelihood that the project will be completed and the software will carry out its intended use.
Great! (Score:2, Informative)
Re: (Score:2)
Well, with the US government finally getting around to letting people directly file/pay their taxes online, a lot of accountants are probably looking for new revenue streams.
Re: (Score:3)
Sounds like they're trying to make it easier, not more complicated.
Re: (Score:2)
Faster, more dependable than the USPS, and cheaper, no stamps or printing.
Re: (Score:3)
You're assuming everyone only gets income from work. What about interest income, gambling winnings, debt forgiveness, dividend payments, part time income, rental properties, alimony payments, tax refunds, undeclared tips, or gig work? Just because someone gets a W-2 doesn't mean that is their only revenue source. A hand-filled form with a single income stream might work for you, but not for everyone.
IF you do taxes online and they already have all your income correct, then just click "file" and you're do
Re: (Score:2)
Exactly its the EZ form that is the joke. In fact if the IRS really wanted to catch a lot of tax cheats, the probably ought to start with people over the age of 24 who filed an EZ.
About the only people who can reasonably use that or students with jobs like paper route, sandwich artist, and paid intern.
Most employers won't even pay you with paper checks etc any longer so you have to have a bank account, and that means at least you probably have some report-able interest income and probably a 1099G from the
Re: (Score:2)
Re: (Score:2)
Oh Lordy, an EZ filer might have scammed the government out of hundreds of dollars.
Lets spend thousands of dollars per tax cheat to investigate!
Re: because (Score:2)
What? I've never used more than a single stamp. If I can stuff it into an envelope, a single stamp should cover it. I've never seen evidence otherwise.
Re: (Score:2)
IFRS comparison (Score:2)
Every country has their own FAS board, how does the US change compare to International Standards (IFRS)? Is, the USA, once again, ignoring international conventions?
Re: (Score:1)
Why should one country care how another country regulates businesses?
So, on plain language (Score:2)
Business Expense / Software Expense (Score:2)
In language even an Australian could understand. What does this mean to do?
Today, entries in an accounting system might look something like:
Business Expense | Microsoft Office | $
Business Expense | Adobe Creative Suite | $
Tomorrow, the business expense category may have a subcategory for software expenses:
Business Expense / Software Expense | Microsoft Office | $
Business Expense / Software Expense | Adobe Creative Suite | $
Failure to comply will really really annoy an IRS auditor. Fines and jail time may result.
Re: Business Expense / Software Expense (Score:1)
https://tax.thomsonreuters.com/blog/software-depreciation-exploring-tax-implications-and-deductions/ [thomsonreuters.com]
Re: (Score:2)
This is related to how software that a company develops is capitalized and depreciated, not how it pays for software subscriptions. Ever wonder why buggy software has to be released by a certain date? It's so finance people can start claiming depreciation on the company's software asset. https://tax.thomsonreuters.com/blog/software-depreciation-exploring-tax-implications-and-deductions/ [thomsonreuters.com]
The proposal covers both purchased and subscribed software as I indicated above and as your citation indicates, and it also applies to cash spent on software development. Cash expenditures are a relatively minor component of software development costs. Employee related costs are by far the largest expense.
As I mentioned in another post, whether software is an expense or asset typically has to do with its cost. With respect to assets, as your citation indicates, there is a special (temporary) provision t
Re: (Score:2)
Trying to fit a square peg in a round hole (Score:4, Informative)
When is an asset an asset? They are trying to fix software to fit in a hole that was initially made for physical material. Unlike a building which at some point construction stops and maintenance and operations begin, software tends to continually evolve or possibly die. If you're constantly building, meaning construction never ends, then where or when do you place the value/cost?
I don't know why they, summary and article, refer to cash since this is not about the exchange of legal tender but a value on financial statements. As to how it's indicated on cashflow statements makes little difference since it must be issued. Not enough detail.
I don't know why this is news because the correct answer depends on who you are. Governments like to push the costs to the future since it increases taxation for the current year. Bankers like to have an idea of the value and profitability. Operators prefer to expense since it improves cashflow by reducing taxation for the current year.
So do we treat it like a restaurant where we need to continually service to maintain the clientele or a landlord who mortgages and reaps the reward over future years? I believe that is the question this article is asking.
Re: (Score:2)
I'd argue that the hole has been well mangled for a long time to deal with non-physical assets. I mean, they're centuries old - patents, copyright, licenses, trademarks, and all that.
Unlike a building which at some point construction stops and maintenance and operations begin
Again, go back in years and it stops looking like buildings, at least select classes of them, ever actually stop being constructed. You're always modifying/expanding them. When you stop, well, it's a good sign that they're likely to be abandoned soon.
And yes, whether you treat it like a depreciating asset like a car, or an e
Re: (Score:2)
When is an asset an asset?
The line between expense and an asset is often cost. Let's say the line is $600.
$300 Chromebook, an expense that may be entirely taken this tax year.
$1,100 Apple Macbook Air, an asset that gets depreciated over 5 years for tax purposes.
They are trying to fix software to fit in a hole that was initially made for physical material.
That's not a problem. They already do so with digital assets, for example crypto currency.
Unlike a building which at some point construction stops and maintenance and operations begin, software tends to continually evolve or possibly die.
Both building and software are initially constructed, maintained, evolve, and die.
If you're constantly building, meaning construction never ends, then where or when do you place the value/cost?
The rules seem to be oriented towards software that is purchased or subscribed to.
I don't know why they, summary and article, refer to cash since this is not about the exchange of legal tender but a value on financial statements.
Value is often defin
Re: (Score:2)
You missed my point completely. Just by your first response it shows you didn't comprehend. ie: To a construction company a $1 million dollar building is an expense but to a landlord the same building is an asset.
Re: (Score:2)
You missed my point completely. Just by your first response it shows you didn't comprehend. ie: To a construction company a $1 million dollar building is an expense but to a landlord the same building is an asset.
No, your just hung up on a bad analogy. Construction company, software developer, same things, expense. Landlord, software publisher, same thing, asset. Rent for building, subscription for software, same thing, positive cash flow. The analogy cannot be resurrected, move on to any other disagreement you may have.
Re: (Score:2)
You missed my point completely. Just by your first response it shows you didn't comprehend. ie: To a construction company a $1 million dollar building is an expense but to a landlord the same building is an asset.
No, your just hung up on a bad analogy. Construction company, software developer, same things, expense. Landlord, software publisher, same thing, asset. Rent for building, subscription for software, same thing, positive cash flow. The analogy cannot be resurrected, move on to any other disagreement you may have.
Construction company is no longer involved with the building once it's occupied. Software developer keeps working on the project. The building, once developed, is updated by the tenants and maintained by the landlord. I'm not hung up on anything. Nothing similar.
Re: (Score:2)
You missed my point completely. Just by your first response it shows you didn't comprehend. ie: To a construction company a $1 million dollar building is an expense but to a landlord the same building is an asset.
No, your just hung up on a bad analogy. Construction company, software developer, same things, expense. Landlord, software publisher, same thing, asset. Rent for building, subscription for software, same thing, positive cash flow. The analogy cannot be resurrected, move on to any other disagreement you may have.
Construction company is no longer involved with the building once it's occupied. Software developer keeps working on the project.
It depends, some construction companies and some software developers are just contractors that move on to the next client. Some building developers are like software developers in that they construct the building/software and operate/sell it afterwards; and both may use temporary contractors for the initial one time development phase vs the long term operations and maintenance phase.
The building, once developed, is updated by the tenants and maintained by the landlord. I'm not hung up on anything. Nothing similar.
LOL. Lets consider your cherry picked situation, its sounds like FOSS. Still, you are hung up on a bad analog. Again, both bui
Re: (Score:2)
Re: (Score:2)
A building is a cost to the developer/construction company that sells it (Revenue). It becomes an asset after the sale/completion. In your explanation the building is in limbo while it's being developed.
Re: (Score:3)
Difficult summary (Score:2)
Does this refer to internal software development only? Licensed software is pretty easy usually-- capitalize the cost over the lesser of license duration, product life, or (IIRC) 7 years. In practice it is generally just expenses today for tax purposes and capitalized for business/financial use.
But a major development or implementation project is more complicated-- I don't know the specific rules, but many costs are forced to be capitalized that might be justifiable to expense based on unknown project succe
Re: (Score:2)
Re: (Score:2)
I don't think that is the intent. Identifying vendors isn't a material concern. What matters more is if something is a perpetual or annual license, if the cost is for maintenance or license for packaged software.
For software implementations things get a lot more murky. I believe there is a perverst incenetive to declared software projects as having failed so you can expense the cost rather than capitalize it, but that is from experience ~20 years ago.
Huh, now there's an interesting loophole (Score:2)
Re: Huh, now there's an interesting loophole (Score:2)
If your factory line goes down because of poor planning, you still get to capitalize the labor spent while down.
Same should apply here.