![]() ![]() For example, should an entity make or buy the software? Should the software run on a mainframe or a client-server system? Explore alternative means of achieving specified performance requirements.Invite vendors to demonstrate how their software will fulfill an entity’s needs.Determine the performance requirements (i.e., what the entity needs the software to do) and systems requirements for the computer software project the entity has proposed to undertake.For example, should programmers develop a new payroll system or direct their efforts toward correcting existing problems in an operating payroll system? Make strategic decisions to allocate resources between alternative projects at a given point in time.GAAP provides the following examples of common undertakings during this stage: To understand when the preliminary project stage is complete, we must define this step. Businesses can start capitalizing costs when both the preliminary project stage is complete and when the project’s management commits to funding a software project that is probable to be completed. The software development process is divided into three consecutive phases: the preliminary project stage, the application development stage, and the post-implementation stage. In this Insight, the next in PYA’s series on accounting for SaaS, we will take a deeper dive into analyzing what costs are eligible for capitalization under ASC 350-40, and at which stage in the software development process capitalization should begin. ![]() For most companies providing Software as a Service (SaaS) products through a hosting arrangement, where the software vendor retains the right of software possession, the appropriate option would be the application of Accounting Standards Codification (ASC) 350-40. PYA’s thought leadership team has previously discussed the two main methods in accounting for software development costs available under GAAP. The complexity of accounting requirements under Generally Accepted Accounting Principles (GAAP) can further complicate this process. If a reporting entity borrows a portion of the debt, only a proportionate amount of the commitment fee asset should be recognized as an adjustment to the amortized cost basis of the debt drawn.The development of software for customers can be a difficult undertaking for any business. The adjustment to the amortized cost basis will be amortized over the term of the debt as component of the debt’s effective yield. ![]() Once the debt is drawn, the reporting entity should record the debt on its balance sheet, derecognize the commitment fee asset, and record the commitment fee as a component of the debt’s amortized cost basis. For instance, if a reporting entity is near certain that it will draw down/borrow the debt, the commitment fee is economically compensation for the borrowing, and we believe it would be appropriate for the commitment fee to remain as an asset on the balance sheet until the debt is drawn. We believe that the subsequent accounting for deferred costs is based on the facts and circumstances. As such, we believe these costs meet the definition of an asset and should be recorded as such on the balance sheet. That is, the fees are paid whether or not the funds are ever drawn down. When a reporting entity enters into a delayed draw debt agreement, it pays a commitment fee to the lender in exchange for access to capital over the contractual term. Transfers and servicing of financial assets Revenue from contracts with customers (ASC 606) Loans and investments (post ASU 2016-13 and ASC 326) Investments in debt and equity securities (pre ASU 2016-13) Insurance contracts for insurance entities (pre ASU 2018-12) Insurance contracts for insurance entities (post ASU 2018-12) IFRS and US GAAP: Similarities and differences Business combinations and noncontrolling interestsĮquity method investments and joint ventures ![]()
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