Accounting for Costs of Computer Software for Internal Use 20,411

Section 10,720
Statement of Position 98-1
Accounting for the Costs of Computer Software
D e v e lo p e d o r O b ta i n e d f o r I n t e r n a l U s e
March 4, 1998

NOTE
Statements of Position on accounting issues present the conclusions of at least
two-thirds of the Accounting Standards Executive Committee, which is the senior
technical body of the Institute authorized to speak for the Institute in the areas
of financial accounting and reporting. Statement on Auditing Standards No. 69,
The Meaning of Present Fairly in Conformity With Generally Accepted Accounting
Principles, identifies AICPA Statements of Position that have been cleared by the
Financial Accounting Standards Board as sources of established accounting
principles in category b of the hierarchy of generally accepted accounting
principles that it establishes. AICPA members should consider the accounting
principles in this Statement of Position if a different accounting treatment of a
transaction or event is not specified by a pronouncement covered by Rule 203 of
the AICPA Code of Professional Conduct. In such circumstances, the accounting
treatment specified by the Statement of Position should be used, or the member
should be prepared to justify a conclusion that another treatment better presents
the substance of the transaction in the circumstances.

Summary
This Statement of Position (SOP) provides guidance on accounting for the costs
of computer software developed or obtained for internal use. The SOP requires
the following:
• Computer software meeting the characteristics specified in this SOP
is internal-use software.
• Computer software costs that are incurred in the preliminary project
stage should be expensed as incurred. Once the capitalization criteria
of the SOP have been met, external direct costs of materials and
services consumed in developing or obtaining internal-use computer
software; payroll and payroll-related costs for employees who are
directly associated with and who devote time to the internal-use
computer software project (to the extent of the time spent directly on
the project); and interest costs incurred when developing computer
software for internal use should be capitalized. Training costs and data
conversion costs, except as noted in paragraph .21, should be expensed
as incurred.
• Internal costs incurred for upgrades and enhancements should be
expensed or capitalized in accordance with paragraphs .20–.23. Inter-
nal costs incurred for maintenance should be expensed as incurred.
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.
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AICPA Technical Practice Aids §10,720
20,412 Statements of Position

• External costs incurred under agreements related to specified up-

grades and enhancements should be expensed or capitalized in accord-
ance with paragraphs .20–.23. However, external costs related to
maintenance, unspecified upgrades and enhancements, and costs un-
der agreements that combine the costs of maintenance and unspecified
upgrades and enhancements should be recognized in expense over the
contract period on a straight-line basis unless another systematic and
rational basis is more representative of the services received.
• Impairment should be recognized and measured in accordance with
the provisions of FASB Statement No. 121, Accounting for the Impair-
ment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of.*1
• The capitalized costs of computer software developed or obtained for
internal use should be amortized on a straight-line basis unless
another systematic and rational basis is more representative of the
software’s use.
• If, after the development of internal-use software is completed, an
entity decides to market the software, proceeds received from the
license of the computer software, net of direct incremental costs of
marketing, should be applied against the carrying amount of that
software.
The SOP identifies the characteristics of internal-use software and provides
examples to assist in determining when computer software is for internal use.
The SOP applies to all nongovernmental entities and is effective for financial
statements for fiscal years beginning after December 15, 1998. The provisions
of this SOP should be applied to internal-use software costs incurred in those
fiscal years for all projects, including those projects in progress upon initial
application of the SOP. Earlier application is encouraged in fiscal years for
which annual financial statements have not been issued. Costs incurred prior
to initial application of this SOP, whether capitalized or not, should not be
adjusted to the amounts that would have been capitalized had this SOP been
in effect when those costs were incurred.

Foreword
The accounting guidance contained in this document has been cleared by the
Financial Accounting Standards Board (FASB). The procedure for clearing
accounting guidance in documents issued by the Accounting Standards Execu-
tive Committee (AcSEC) involves the FASB reviewing and discussing in public
board meetings (1) a prospectus for a project to develop a document, (2) a
proposed exposure draft that has been approved by at least ten of AcSEC’s
fifteen members, and (3) a proposed final document that has been approved by
at least ten of AcSEC’s fifteen members. The document is cleared if at least five
of the seven FASB members do not object to AcSEC undertaking the project,
issuing the proposed exposure draft, or after considering the input received by
AcSEC as a result of the issuance of the exposure draft, issuing the final
document.
Copyright © 2002 142 10-02 20,412
1

*
FASB Statement No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets,
supersedes FASB Statement No. 121. [Footnote added, October 2002, to reflect conforming changes
necessary due to the issuance of FASB Statement No. 144.]

§10,720 Copyright © 2002, American Institute of Certified Public Accountants, Inc.

 Accounting for Costs of Computer Software for Internal Use 20,413
The criteria applied by the FASB in their review of proposed projects and
proposed documents include the following:
1. The proposal does not conflict with current or proposed accounting
requirements, unless it is a limited circumstance, usually in special-
ized industry accounting, and the proposal adequately justifies the
departure.
2. The proposal will result in an improvement in practice.
3. The AICPA demonstrates the need for the proposal.
4. The benefits of the proposal are expected to exceed the costs of
applying it.
In many situations, prior to clearance, the FASB will propose suggestions,
many of which are included in the documents.

Introduction and Background

.01 The Financial Accounting Standards Board (FASB) issued Statement
of Financial Accounting Standards No. 86, Accounting for the Costs of Com-
puter Software to Be Sold, Leased, or Otherwise Marketed, in 1985. At that
time, the FASB considered expanding the scope of that project to include costs
incurred for the development of computer software for internal use. The FASB
concluded, however, that accounting for the costs of software used internally
was not a significant problem and, therefore, decided not to expand the scope
of the project. The FASB stated that it recognized that at that time the majority
of entities expensed all costs of developing software for internal use, and it was
not convinced that the predominant practice was improper.
.02 Because of the absence of authoritative literature that specifically
addresses accounting for the costs of computer software developed or obtained
for internal use and the growing magnitude of those costs, practice became
diverse. Some entities capitalize costs of internal-use computer software,
whereas some entities expense costs as incurred. Still other entities capitalize
costs of purchased internal-use computer software and expense costs of inter-
nally developed internal-use computer software as incurred.
.03 The staff of the Securities and Exchange Commission (SEC) and other
interested parties have requested that standard setters develop authoritative
guidance to eliminate the inconsistencies in practice. In a November 1994
letter, the Chief Accountant of the SEC suggested that the Emerging Issues
Task Force (EITF) develop that guidance. However, the EITF and the Account-
ing Standards Executive Committee (AcSEC) agreed that AcSEC should de-
velop the guidance.
.04 AcSEC issued an exposure draft of a proposed Statement of Position
(SOP), Accounting for the Costs of Computer Software Developed or Obtained
for Internal Use, on December 17, 1996. AcSEC received about 130 comment
letters in response to the exposure draft.

Scope
.05 This SOP provides guidance on accounting by all nongovernmental
entities, including not-for-profit organizations, for the costs of computer soft-
ware developed or obtained for internal use and provides guidance for deter-
mining whether computer software is for internal use.
.06 This SOP clarifies that the costs of computer software developed or
obtained are costs of either (a) software to be sold, leased, or otherwise mar-
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AICPA Technical Practice Aids §10,720.06
20,414 Statements of Position
keted as a separate product or as part of a product or process, subject to FASB
Statement No. 86; (b) software to be used in research and development, subject
to FASB Statement No. 2, Accounting for Research and Development Costs, and
FASB Interpretation No. 6, Applicability of FASB Statement No. 2 to Computer
Software; (c) software developed for others under a contractual arrangement,
subject to contract accounting standards; or (d) internal-use software, subject
to this SOP. This SOP does not change any of the provisions in FASB State-
ment Nos. 86, 2, or FASB Interpretation No. 6.
.07 Costs of computer software that is “sold, leased, or otherwise mar-
keted as a separate product or as part of a product or process” are within the
scope of FASB Statement No. 86. The Appendix of this SOP includes examples
of computer software considered to be for internal use and thus not “part of a
product or process.”
.08 This SOP provides guidance on when costs incurred for internal-use
computer software are and are not capitalized.
.09 This SOP provides guidance on accounting for the proceeds of com-
puter software developed or obtained for internal use that is marketed.
.10 This SOP provides guidance on accounting for computer software that
consists of more than one component or module. For example, an entity may
develop an accounting software system containing three elements: a general
ledger, an accounts payable subledger, and an accounts receivable subledger.
In this example, each element might be viewed as a component or module of
the entire accounting software system. The guidance in this SOP should be
applied to individual components or modules.
.11 Accounting for costs of reengineering activities, which often are asso-
ciated with new or upgraded software applications, is not included within the
scope of this SOP.11

Conclusions
Characteristics of Internal-Use Computer Software
.12 For purposes of this SOP, internal-use software is software having the
following characteristics:
a. The software is acquired, internally developed, or modified solely to
meet the entity’s internal needs.
b. During the software’s development or modification, no substantive
plan exists or is being developed to market the software externally.
A substantive plan to market software externally could include the selection of
a marketing channel or channels with identified promotional, delivery, billing,
and support activities. To be considered a substantive plan under this SOP,
implementation of the plan should be reasonably possible. Arrangements
providing for the joint development of software for mutual internal use (for
example, cost-sharing arrangements) are not substantive plans to market
software for purposes of this SOP. Similarly, routine market feasibility studies
are not substantive plans to market software for purposes of this SOP.
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1

1
This SOP does not change the conclusions reached in Emerging Issues Task Force Issue No.
97-13, Accounting for Costs Incurred in Connection with a Consulting Contract or an Internal Project
That Combines Business Process Reengineering and Information Technology Transformation, which
requires that the costs of reengineering activities be expensed as incurred.

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 Accounting for Costs of Computer Software for Internal Use 20,415
.13 An entity must meet both characteristics in paragraph .12 for soft-
ware to be considered for internal use.
.14 An entity’s past practices related to selling software may help deter-
mine whether the software is for internal use or is subject to a plan to be
marketed externally. For example, an entity in the business of selling com-
puter software often both uses and sells its own software products. Such a past
practice of both using and selling computer software creates a rebuttable
presumption that any software developed by that entity is intended for sale,
lease, or other marketing, and thus is subject to the guidance in FASB State-
ment No. 86.
.15 Computer software to be sold, leased, or otherwise marketed includes
software that is part of a product or process to be sold to a customer and should
be accounted for under FASB Statement No. 86. For example, software de-
signed for and embedded in a semiconductor chip is included in the scope of
FASB Statement No. 86 because it is an integral part of the product. By
contrast, software for internal use, though it may be used in developing a
product, is not part of or included in the actual product or service sold. If
software is used by the vendor in the production of the product or providing the
service but the customer does not acquire the software or the future right to
use it, the software is covered by this SOP. For example, for a communications
company selling telephone services, software included in a telephone switch is
part of the internal equipment used to deliver a service but is not part of the
product or service actually being acquired or received by the customer.
.16 The Appendix [paragraph .93] provides examples of when computer
software is and is not for internal use.

Stages of Computer Software Development

.17 The following table illustrates the various stages and related proc-
esses of computer software development.
Preliminary Application Post-Implementation/
Project Stage Development Stage Operation Stage
Conceptual formulation Design of chosen path, Training
of alternatives including software
configuration and Application
Evaluation of software interfaces maintenance
alternatives
Coding
Determination of
existence of needed Installation to hardware
technology
Testing, including
Final selection of parallel processing
alternatives phase

The SOP recognizes that the development of internal-use computer software

may not follow the order shown above. For example, coding and testing are
often performed simultaneously. Regardless, for costs incurred subsequent to
completion of the preliminary project stage, the SOP should be applied based
on the nature of the costs incurred, not the timing of their incurrence. For
example, while some training may occur in the application development stage,
it should be expensed as incurred as required in paragraphs .21 and .23.
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AICPA Technical Practice Aids §10,720.17
20,416 Statements of Position

Research and Development

.18 The following costs of internal-use computer software are included in
research and development and should be accounted for in accordance with the
provisions of FASB Statement No. 2:
a. Purchased or leased computer software used in research and devel-
opment activities where the software does not have alternative
future uses.
b. All internally developed internal-use computer software21 (including
software developed by third parties, for example, programmer con-
sultants) if (1) the software is a pilot project (that is, software of a
nature similar to a pilot plant as noted in paragraph 9(h) of FASB
Statement No. 2) or (2) the software is used in a particular research
and development project, regardless of whether the software has
alternative future uses.

Capitalize or Expense
.19 Preliminary Project Stage. When a computer software project is in
the preliminary project stage, entities will likely—
a. Make strategic decisions to allocate resources between alternative
projects at a given point in time. For example, should programmers
develop a new payroll system or direct their efforts toward correcting
existing problems in an operating payroll system?
b. Determine the performance requirements (that is, what it is that
they need the software to do) and systems requirements for the
computer software project it has proposed to undertake.
c. Invite vendors to perform demonstrations of how their software will
fulfill an entity’s needs.
d. Explore alternative means of achieving specified performance re-
quirements. For example, should an entity make or buy the software?
Should the software run on a mainframe or a client server system?
e. Determine that the technology needed to achieve performance re-
quirements exists.
f. Select a vendor if an entity chooses to obtain software.
g. Select a consultant to assist in the development or installation of the
software.
.20 Internal and external costs incurred during the preliminary project
stage should be expensed as they are incurred.
.21 Application Development Stage. Internal and external costs incurred
to develop internal-use computer software during the application development
stage should be capitalized. Costs to develop or obtain software that allows for
access or conversion of old data by new systems should also be capitalized.
Training costs are not internal-use software development costs and, if incurred
during this stage, should be expensed as incurred.
.22 The process of data conversion from old to new systems may include
purging or cleansing of existing data, reconciliation or balancing of the old data
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1

2
FASB Interpretation No. 6 excludes from research and development costs computer software
related to an entity’s selling and administrative activities.

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 Accounting for Costs of Computer Software for Internal Use 20,417
and the data in the new system, creation of new/additional data, and conver-
sion of old data to the new system. Data conversion often occurs during the
application development stage. Data conversion costs, except as noted in
paragraph .21, should be expensed as incurred.
.23 Post-Implementation/Operation Stage. Internal and external train-
ing costs and maintenance costs should be expensed as incurred.
.24 Upgrades and Enhancements. For purposes of this SOP, upgrades
and enhancements are defined as modifications to existing internal-use software
that result in additional functionality—that is, modifications to enable the soft-
ware to perform tasks that it was previously incapable of performing. Upgrades
and enhancements normally require new software specifications and may also
require a change to all or part of the existing software specifications. In order for
costs of specified upgrades and enhancements to internal-use computer software
to be capitalized in accordance with paragraphs .25 and .26, it must be prob-
able31 that those expenditures will result in additional functionality.42
.25 Internal costs incurred for upgrades and enhancements should be
expensed or capitalized in accordance with paragraphs .20–.23.53Internal costs
incurred for maintenance should be expensed as incurred. Entities that cannot
separate internal costs on a reasonably cost-effective basis between mainte-
nance and relatively minor upgrades and enhancements should expense such
costs as incurred.
.26 External costs incurred under agreements related to specified up-
grades and enhancements should be expensed or capitalized in accordance
with paragraphs .20–.23. (If maintenance is combined with specified upgrades
and enhancements in a single contract, the cost should be allocated between
the elements as discussed in paragraph .33 and the maintenance costs should
be expensed over the contract period.) However, external costs related to
maintenance, unspecified upgrades and enhancements, and costs under agree-
ments that combine the costs of maintenance and unspecified upgrades and
enhancements should be recognized in expense over the contract period on a
straight-line basis unless another systematic and rational basis is more repre-
sentative of the services received.
.27 Capitalization of costs should begin when both of the following occur.
a. Preliminary project stage is completed.
b. Management, with the relevant authority, implicitly or explicitly
authorizes and commits to funding a computer software project and
it is probable64 that the project will be completed and the software
will be used to perform the function intended. Examples of authori-
zation include the execution of a contract with a third party to
develop the software, approval of expenditures related to internal
development, or a commitment to obtain the software from a third
party.
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1

3
See paragraph .62 of this SOP for meaning of “probable.”
2

4
This SOP does not change the conclusions reached in Emerging Issues Task Force Issue No.
96-14, Accounting for the Costs Associated with Modifying Computer Software for the Year 2000,
which requires that external and internal costs associated with modifying internal-use software
currently in use for the Year 2000 be charged to expense as incurred. New internal-use software
developed or obtained that replaces previously existing internal-use software should be accounted for
in accordance with this SOP.
3

5
See footnote 4.
4

6
See paragraph .62 of this SOP for meaning of “probable.”

AICPA Technical Practice Aids §10,720.27

20,418 Statements of Position
.28 When it is no longer probable71that the computer software project will
be completed and placed in service, no further costs should be capitalized, and
guidance in paragraphs .34 and .35 on impairment should be applied to
existing balances.
.29 Capitalization should cease no later than the point at which a com-
puter software project is substantially complete and ready for its intended use.
For purposes of this SOP, computer software is ready for its intended use after
all substantial testing is completed.
.30 New software development activities should trigger consideration of
remaining useful lives of software that is to be replaced. When an entity
replaces existing software with new software, unamortized costs of the old
software should be expensed when the new software is ready for its intended
use.

Capitalizable Costs
.31 Costs of computer software developed or obtained for internal use that
should be capitalized include only the following:
a. External direct costs of materials and services consumed in develop-
ing or obtaining internal-use computer software. Examples of those
costs include but are not limited to fees paid to third parties for
services provided to develop the software during the application
development stage, costs incurred to obtain computer software from
third parties, and travel expenses incurred by employees in their
duties directly associated with developing software.
b. Payroll and payroll-related costs (for example, costs of employee
benefits) for employees who are directly associated with and who
devote time to the internal-use computer software project, to the
extent of the time spent directly on the project. Examples of employee
activities include but are not limited to coding and testing during the
application development stage.
c. Interest costs incurred while developing internal-use computer soft-
ware. Interest should be capitalized in accordance with the provi-
sions of FASB Statement No. 34, Capitalization of Interest Cost.82
General and administrative costs and overhead costs should not be capitalized
as costs of internal-use software.
.32 Entities often license internal-use software from third parties. Though
FASB Statement No. 13, Accounting for Leases, excludes licensing agreements
from its scope, entities should analogize to that Statement when determining the
asset acquired in a software licensing arrangement.

Multiple-Element Software Arrangements Included in

Purchase Price
.33 Entities may purchase internal-use computer software from a third
party. In some cases, the purchase price includes multiple elements, such as
training for the software, maintenance fees for routine maintenance work to be
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1

7
See paragraph .62 of this SOP for meaning of “probable.”
2

8
Paragraph 17 of FASB Statement No. 34, Capitalization of Interest Cost, states, “If the
enterprise suspends substantially all activities related to acquisition of the asset, interest capitaliza-
tion shall cease until activities are resumed.”

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 Accounting for Costs of Computer Software for Internal Use 20,419
performed by the third party, data conversion costs, reengineering costs, and
rights to future upgrades and enhancements. Entities should allocate the cost
among all individual elements. The allocation should be based on objective
evidence of fair value of the elements in the contract, not necessarily separate
prices stated within the contract for each element. Those elements included in
the scope of this SOP should be accounted for in accordance with the provisions
of this SOP.

Impairment
.34 Impairment should be recognized and measured in accordance with
the provisions of FASB Statement No. 121, Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of.*1 Paragraph 8
of FASB Statement No. 121 * requires that assets should be grouped at the
lowest level for which there are identifiable cash flows that are largely
independent of the cash flows of other groups of assets. FASB Statement
No. 121* guidance is applicable, for example, when one of the following occurs
related to computer software being developed or currently in use:
a. Internal-use computer software is not expected to provide substan-
tive service potential,
b. A significant change occurs in the extent or manner in which the
software is used or is expected to be used,
c. A significant change is made or will be made to the software program,
d. Costs of developing or modifying internal-use computer software
significantly exceed the amount originally expected to develop or
modify the software.
.35 Paragraph 10 of FASB Statement No. 121* requires that “if the asset
is not expected to provide any service potential to the entity, the asset shall be
accounted for as if abandoned or held for disposal in accordance with the
provisions of paragraph 15 of [FASB Statement No. 121*].” When it is no longer
probable92 that computer software being developed will be completed and
placed in service, the asset should be reported at the lower of the carrying
amount or fair value, if any, less costs to sell. The rebuttable presumption is
that such uncompleted software has a fair value of zero. Indications that the
software may no longer be expected to be completed and placed in service
include the following:
a. A lack of expenditures budgeted or incurred for the project
b. Programming difficulties that cannot be resolved on a timely basis
c. Significant cost overruns
d. Information has been obtained indicating that the costs of internally
developed software will significantly exceed the cost of comparable
third-party software or software products, so that management in-
tends to obtain the third-party software or software products instead
of completing the internally developed software
e. Technologies are introduced in the marketplace, so that manage-
ment intends to obtain the third-party software or software products
instead of completing the internally developed software
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1

*
FASB Statement No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets,
supersedes FASB Statement No. 121. [Footnote added, October 2002, to reflect conforming changes
necessary due to the issuance of FASB Statement No. 144.]
2

9
See paragraph .62 of this SOP for meaning of “probable.”

AICPA Technical Practice Aids §10,720.35

20,420 Statements of Position
f. Business segment or unit to which the software relates is unprofit-
able or has been or will be discontinued.

Amortization
.36 The costs of computer software developed or obtained for internal use
should be amortized on a straight-line basis unless another systematic and
rational basis is more representative of the software’s use.
.37 In determining and periodically reassessing the estimated useful life
over which the costs incurred for internal-use computer software will be
amortized, entities should consider the effects of obsolescence, technology,
competition, and other economic factors. Entities should consider rapid
changes that may be occurring in the development of software products,
software operating systems, or computer hardware and whether management
intends to replace any technologically inferior software or hardware. Given the
history of rapid changes in technology, software often has had a relatively short
useful life.
.38 For each module or component of a software project, amortization
should begin when the computer software is ready for its intended use, regard-
less of whether the software will be placed in service in planned stages that
may extend beyond a reporting period. For purposes of this SOP, computer
software is ready for its intended use after all substantial testing is completed.
If the functionality of a module is entirely dependent on the completion of other
modules, amortization of that module should begin when both that module and
the other modules upon which it is functionally dependent are ready for their
intended use.

Internal-Use Computer Software Marketed

.39 If, after the development of internal-use software is completed, an
entity decides to market the software, proceeds received from the license of the
computer software, net of direct incremental costs of marketing, such as
commissions, software reproduction costs, warranty and service obligations,
and installation costs, should be applied against the carrying amount of that
software. No profit should be recognized until aggregate net proceeds from
licenses and amortization have reduced the carrying amount of the software to
zero. Subsequent proceeds should be recognized in revenue as earned.
.40 If, during the development of internal-use software, an entity decides
to market the software to others, the entity should follow FASB Statement No.
86. Amounts previously capitalized under this SOP should be evaluated at each
balance sheet date in accordance with paragraph 10 of FASB Statement No. 86.
Capitalized software costs should be amortized in accordance with paragraph 8
of FASB Statement No. 86. A pattern of deciding to market internal-use
software during its development creates a rebuttable presumption that any
software developed by that entity is intended for sale, lease, or other marketing,
and thus is subject to the guidance in FASB Statement No. 86.

Disclosures
.41 This SOP does not require any new disclosures; disclosure should be
made in accordance with existing authoritative literature, including Account-
ing Principles Board (APB) Opinion No. 12, Disclosure of Depreciable Assets and
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 Accounting for Costs of Computer Software for Internal Use 20,421
Depreciation; APB Opinion No. 22, Disclosure of Accounting Policies (for exam-
ple, amortization methods); FASB Statement Nos. 2 and 121*;1 and SOP 94-6,
Disclosure of Certain Significant Risks and Uncertainties.

Effective Date and Transition

.42 This SOP is effective for financial statements for fiscal years begin-
ning after December 15, 1998, and should be applied to internal-use computer
software costs incurred in those fiscal years for all projects, including those
projects in progress upon initial application of this SOP. Earlier application is
encouraged in fiscal years for which annual financial statements have not been
issued.
.43 Costs incurred prior to initial application of this SOP, whether capi-
talized or not, should not be adjusted to the amounts that would have been
capitalized had this SOP been in effect when those costs were incurred.
However, the provisions of this SOP concerning amortization and impairment
should be applied to any unamortized costs capitalized prior to initial applica-
tion of this SOP that continue to be reported as assets after the effective date.
In accordance with paragraph 33 of APB Opinion No. 20, Accounting Changes,
the effect on income before extraordinary items, net income, and related per
share amounts of the current period should be disclosed for the change in
accounting.
.44 Initial application of this SOP should be as of the beginning of the
fiscal year in which the SOP is first adopted (that is, if the SOP is adopted prior
to the effective date and during an interim period other than the first interim
period, all prior interim periods of that fiscal year should be restated).

The provisions of this Statement need

not be applied to immaterial items.

Basis for Conclusions

Characteristics of Internal-Use Computer Software
.45 AcSEC recognizes that entities may develop computer software for inter-
nal use and also plan to sell, lease, or otherwise market the software to recover
some costs. AcSEC believes that the presence of a substantive plan to market
software externally before or during software development indicates an intent to
sell, lease, or otherwise market software, which requires accounting prescribed by
FASB Statement No. 86. AcSEC believes that it is impractical to allocate costs
between internal-use software and software to be marketed.
.46 AcSEC considered whether one of the characteristics of internal-use
computer software should be that during the software’s development, no
substantive plan or intent to market the software externally exists. AcSEC
decided that it could not provide operational guidance to help entities define
intent. For example, many entities will consider opportunities to recover some
of the software development costs through subsequent sales of the product.
AcSEC believes that it cannot provide guidance to distinguish between a true
intent to market software and routine inquiries and studies about the possibil-
ity of recovering some costs.
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1

*
FASB Statement No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets,
supersedes FASB Statement No. 121. [Footnote added, October 2002, to reflect conforming changes
necessary due to the issuance of FASB Statement No. 144.]

AICPA Technical Practice Aids §10,720.46

20,422 Statements of Position
.47 Because FASB Statement No. 86 does not define “part of a product or
process,” many entities have difficulty determining whether computer soft-
ware is for internal use and subject to the SOP or “part of a product or process”
and subject to the accounting prescribed by FASB Statement No. 86. A FASB
staff article (which Statement on Auditing Standards No. 69, The Meaning of
Present Fairly in Accordance With Generally Accepted Accounting Principles,
subordinates to an SOP) Computer Software: Guidance on Applying Statement
No. 86 that appeared in a 1986 FASB Status Report attempted to clarify that
term as follows: “Indications that the software in question falls under the
Statement’s scope include the dependence of the company on the software to
provide the service. In other words, could the company earn revenue from
providing the service without the software? Would the service be as timely or
accurate without the software? If the answer to any of these questions is no,
that may indicate that the software is part of a product or process and is
included in the scope of Statement No. 86.”
.48 In this SOP, AcSEC provides what it believes to be operational
guidance that will help entities determine if computer software is for internal
use. AcSEC believes that the distinction can be based on what the customer is
buying. If the customer is acquiring the software or the future right to use it,
the costs of that software are accounted for in accordance with the provisions
of FASB Statement No. 86. However, if the software is used by the vendor in
production of the product or in providing the service but the customer does not
acquire the software or the future right to use it, the software is for internal
use. The Appendix [paragraph .93] provides examples of when computer
software is and is not for internal use.
.49 AcSEC believes that the guidance in this SOP should be applied at the
component or module level. One computer software project may result in
several different working modules, which with appropriate software interfaces
can be used independently of other modules. AcSEC analogized to an entity
that constructs a building complex. Though several buildings are ultimately
constructed, each building is an asset and may function without the others.

Research and Development

.50 Some respondents to the exposure draft believe that the costs of
computer software developed or obtained for internal use should be charged to
expense when incurred as research and development until technological feasi-
bility has been established for the software. They believe that, like the costs of
computer software to be sold, leased, or otherwise marketed, the costs of
internal-use computer software are within the scope of paragraph 9(i) of FASB
Statement No. 2, which states that “engineering activity required to advance
the design of a product to the point that it meets specific functional and
economic requirements and is ready for manufacture,” and therefore those
costs should be included within research and development.
.51 AcSEC considered whether this SOP should require entities to meet
some technological feasibility threshold before they could capitalize costs of
internal-use computer software. AcSEC decided and most respondents to the
exposure draft agreed that technological feasibility should not apply to this
SOP. AcSEC reasoned that the technological feasibility criteria applied in
FASB Statement No. 86 to software that is sold, leased, or otherwise marketed
were appropriate to an inventory model. That inventory model includes an
implicit marketability test, a notion that is not applicable to this SOP.
.52 FASB Interpretation No. 6 states that the costs of computer software
that is developed or obtained for use in an entity’s selling and administrative
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 Accounting for Costs of Computer Software for Internal Use 20,423
activities are not research and development costs. In addition, it states that,
“costs incurred to purchase or lease computer software developed by others are
not research and development costs under FASB Statement No. 2 unless the
software is for use in research and development activities.” Further, FASB
Interpretation No. 6 states, “costs incurred by an enterprise in developing
computer software internally for use in its research and development activities
are research and development costs . . ., ” regardless of whether the software
has alternative future uses.
.53 AcSEC also considered the guidance of paragraphs 9(h) and 10(h) of
FASB Statement No. 2 to determine whether other costs of internal-use
software are excluded from research and development. Paragraph 10(h) of
FASB Statement No. 2 states that “activity, including design and construction
engineering, related to the construction, relocation, rearrangement, or start-up
of facilities or equipment other than (1) pilot plants and (2) facilities or
equipment whose sole use is for a particular research and development project”
are excluded from research and development.
.54 Because of the guidance in FASB Statement No. 2 and FASB Inter-
pretation No. 6, AcSEC concluded that not all internal-use software costs are
research and development costs (see paragraph 52). However, AcSEC evalu-
ated the process of developing internal-use software within the context of
FASB Statement No. 2 because that statement is either directly relevant or is
a reasonable basis for determining which costs of internal-use software devel-
opment activities should be expensed. Consistent with FASB Statement No. 2,
AcSEC did not specify the income statement classifications of expensed inter-
nal-use software development costs.
.55 Paragraphs 9(c) and 9(d), respectively, of FASB Statement No. 2
include “conceptual formulation and design of possible product or process
alternatives” and “testing in search for or evaluation of product or process
alternatives” as examples of activities that are research and development and
therefore are expensed as incurred. AcSEC believes paragraphs 9(c) and 9(d)
are relevant to the process of developing internal-use computer software.
AcSEC believes that as part of these activities an entity will determine
whether the needed technology exists. If the technology does not exist, then
research and development-type activities have not yet been completed, and
therefore those costs should be expensed as incurred.
.56 AcSEC also believes that development risks associated with creating
internal-use computer software are conceptually no different from develop-
ment risks associated with creating other assets such as high-tech automated
plants. Entities, at the start of both kinds of projects, often expect that existing
technology will allow the entity to complete projects that will provide future
benefits.

Capitalize or Expense
.57 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. However, certain representatives of
the financial statement user community oppose capitalization of internal costs
incurred to develop or obtain internal-use software.
.58 Those users and some others oppose the exposure draft’s provisions
for capitalization because they believe that the benefits of capitalizing internal
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20,424 Statements of Position
costs are limited. They believe that capitalized internal costs related to devel-
oping or obtaining internal-use software are often unrelated to the software’s
actual value and that such capitalized costs are often irrelevant in the invest-
ment and credit evaluation process. In addition, some who oppose the exposure
draft believe that external costs of developing or obtaining internal-use soft-
ware are a more reliable measure of the software asset than internal costs.
.59 Some respondents to the exposure draft believe that costs of computer
software developed or obtained for internal use should be expensed as in-
curred. They believe that such costs should not be capitalized because they do
not result in demonstrable probable future economic benefits. They believe
that capitalization would result in assets that have arbitrary amortization
periods. They cite paragraph 148 of FASB Concepts Statement No. 6, Elements
of Financial Statements, which states that some “costs are also recognized as
expenses in the period in which they are incurred because the period to which
they otherwise relate is indeterminable or not worth the effort to determine.”
.60 Some respondents to the exposure draft believe that capitalizing the
costs of computer software developed or obtained for internal use frequently
results in a subsequent writeoff of those costs when they are eventually
determined to not be recoverable. Thus, they believe that readers of financial
statements can be misled by the initial capitalization and subsequent writeoff
of those costs.
.61 AcSEC considered all of these views. AcSEC believes that entities
develop or obtain internal-use computer software often for the same end-pur-
poses that they develop or obtain other assets. Examples are to reduce costs,
operate more efficiently, improve internal controls, service customers better,
and gain competitive advantages.
.62 Paragraph 25 in FASB Concepts Statement No. 6 defines assets as
“probable future economic benefits obtained or controlled by a particular entity
as a result of past transactions or events.” Footnote 18 to FASB Concepts
Statement No. 6 states that “probable is used with its general meaning, rather
than in a specific accounting or technical sense, . . . and refers to that which
can reasonably be expected or believed on the basis of available evidence or
logic but is neither certain nor proved . . . . ” Paragraph 26 states: “An asset has
three essential characteristics: (a) it embodies a probable future benefit that
involves a capacity, singly or in combination with other assets, to contribute
directly or indirectly to future net cash inflows, (b) a particular entity can
obtain the benefit and control others’ access to it, and (c) the transaction or
other event giving rise to the entity’s right to or control of the benefit has
already occurred.”
.63 Paragraph 63 in FASB Concepts Statement No. 5, Recognition and
Measurement in Financial Statements of Business Enterprises, sets forth the
following criteria that should be met to recognize an item in the financial
statements:
• Definitions—The item meets the definition of an element of financial
statements.
• Measurability—It has a relevant attribute measurable with sufficient
reliability.
• Relevance—The information about it is capable of making a difference
in user decisions.
• Reliability—The information is representationally faithful, verifiable,
and neutral.
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 Accounting for Costs of Computer Software for Internal Use 20,425
.64 Some proponents of capitalization of internal-use software observe
that paragraph 24 of APB Opinion 17, Intangible Assets, requires that entities
capitalize acquired intangible assets. Paragraph 24 also states that “costs of
developing, maintaining, or restoring intangible assets which are not specifi-
cally identifiable, have indeterminate lives, or are inherent in a continuing
business and related to an enterprise as a whole—such as goodwill—should
be deducted from income when incurred.” AcSEC believes that the costs of
computer software developed or obtained for internal use are specifically
identifiable, have determinate lives, relate to probable future economic bene-
fits (FASB Concepts Statement No. 6), and meet the recognition criteria of
definitions, measurability, relevance, and reliability (FASB Concepts State-
ment No. 5).
.65 AcSEC decided that it was not necessary to characterize computer
software as either intangible assets or tangible assets when similar charac-
terizations have not been made for most other assets.†1
.66 One of the characteristics of an asset in FASB Concepts Statement
No. 6 is that it must contribute directly or indirectly to future net cash inflows,
thus providing probable future economic benefits. AcSEC recognizes that the
specific future economic benefits related to the costs of computer software will
sometimes be difficult to identify. However, AcSEC believes that this is also
true for some other assets. For example, computer hardware or furniture used
in back-office operations are indirectly related to future benefits. Likewise,
corporate office facilities do not result in identifiable future benefits, but the
facilities do support the operations of the company.
.67 AcSEC also recognizes that costs of computer software developed or
obtained for internal use reported as assets may be subsequently written-off
due to lack of adequate funding or lack of management’s continued commit-
ment to a project. However, AcSEC believes similar changes in direction also
occur for long-lived-asset projects. Regardless, AcSEC has established guid-
ance to determine when capitalization should cease and when impairment
should be recognized and measured.
.68 Preliminary Project Stage. AcSEC believes that activities performed
during the preliminary project stage of development for internal-use software
are analogous to research and development activities, and costs incurred
during this stage should be expensed as they are incurred.
.69 Application Development Stage. AcSEC believes that software devel-
opment activities performed during the application development stage create
probable future economic benefits. Therefore, software development costs in-
curred during this stage should be capitalized.
.70 AcSEC believes that paragraph 24 of APB Opinion No. 17 applies to
the costs of data conversion. Therefore, AcSEC believes that data conversion
costs, as discussed in paragraph .22, should be expensed as they are incurred.
However, AcSEC also believes that computer software developed or obtained
for old and new systems interface is internal-use software that is subject to the
guidance in this SOP.
.71 Post-Implementation/Operation Stage. AcSEC believes that train-
ing costs are not software development costs and should be expensed as they
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1

†
Paragraph A14 section e(2) of FASB Statement No. 141, Business Combinations, identifies
computer software as an intangible asset that meets the criteria for recognition apart from goodwill.
[Footnote added, May 2005, to reflect conforming changes necessary due to the issuance of FASB
Statement No. 141.]

AICPA Technical Practice Aids §10,720.71

20,426 Statements of Position
are incurred because entities do not control the continued employment of the
trained employees, are not able to identify the specific future period benefitted,
and amortization periods would be arbitrary.
.72 A number of respondents to the exposure draft said that they could
not distinguish between internal costs of maintenance and upgrades/enhance-
ments; many of those respondents requested further guidance from AcSEC.
AcSEC decided that it could not provide examples that would adequately
distinguish between all possible activities related to maintenance and up-
grades/enhancements. As a result, AcSEC concluded that entities that cannot
separate internal costs on a reasonably cost-effective basis between mainte-
nance and relatively minor upgrades and enhancements should expense such
costs as incurred.
.73 AcSEC acknowledges that SOP 97-2, Software Revenue Recognition,
defines an upgrade and enhancement, in part, as an extension of useful life.
AcSEC concluded that, from the perspective of the user of the software, solely
extending the software’s useful life without adding additional functionality is
a maintenance activity rather than an activity for which the costs should be
capitalized. Accordingly, AcSEC’s criteria for determining capitalizable up-
grades and enhancements focus on providing additional functionality.
.74 AcSEC believes and most respondents to the exposure draft agree
that entities should not have the option to expense or capitalize costs of
computer software developed or obtained for internal use as those costs are
incurred. FASB Concepts Statement No. 2, Qualitative Characteristics of
Accounting Information, states: “Comparability between enterprises and con-
sistency in the application of methods over time increases the informational
value of comparisons of relative economic opportunities or performance. The
significance of information, especially quantitative information, depends to a
great extent on the user’s ability to relate it to some benchmark.”
.75 Capitalization should begin when (a) the preliminary project stage is
completed and (b) management, with the relevant authority, implicitly or
explicitly authorizes and commits to funding a computer software project and
it is probable that the project will be completed and the software will be used
to perform the function intended. Capitalization should cease when it is no
longer probable that the computer software project will be completed and
placed in service. Capitalization should cease no later than the point at which
a computer software project is substantially complete and ready for its in-
tended use. Probable does not require absolute certainty. Probable is used in
the same context as it is in FASB Concepts Statement No. 6, which states that
“probable is used with its general meaning, rather than in a specific accounting
or technical sense, . . . and refers to that which can reasonably be expected or
believed on the basis of available evidence or logic but is neither certain nor
proved . . . . ”
.76 AcSEC used paragraph 18 of FASB Statement No. 34 as a basis for
concluding that capitalization should cease no later than the point at which a
computer software project is substantially complete and ready for its intended
use.
.77 AcSEC considered whether it should provide guidance to limit the
amount of costs that could be capitalized to the amount an entity would spend
to purchase a viable alternative software product from a third party. AcSEC
concluded that it could not provide practicable guidance other than the ability
to recover the capitalized costs as discussed in FASB Statement No. 121.
AcSEC believes that many entities will not be able to identify a third-party
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 Accounting for Costs of Computer Software for Internal Use 20,427
software product that is comparable to the entity’s internal-use software. In
addition, AcSEC believes that many entities would incur undue costs in trying
to determine what is a viable alternative software product.
.78 AcSEC believes that it would be desirable for the costs of internally
developed computer software (whether developed by employees or per diem
independent contractors) that are capitalized to be accounted for no differently
than the capitalized costs of purchased software (whether the software is
obtained retail or developed by outside consultants for a flat fee or price).
AcSEC acknowledges, however, that certain costs of internally developed
software will be expensed as research and development whereas a portion of
the research and development costs incurred by a third party will be capital-
ized by the purchasing entity because the third party’s research and develop-
ment costs are implicitly part of the acquisition price of the software. AcSEC
noted that similar differences exist elsewhere; for example, the costs of acquir-
ing a patent are usually capitalized and the costs of developing a patent are
usually expensed as incurred.
.79 AcSEC believes that users of financial information will find the
results of this SOP useful. AcSEC believes that the marketplace inherently
considers the technological capabilities, including software, of many entities
when it establishes market values. This SOP provides a reasonable methodol-
ogy to record the costs of internal-use software. In addition, AcSEC believes
that the disclosures required by existing authoritative literature are sufficient
to help users make informed decisions.
Capitalizable Costs
.80 AcSEC used SOP 93-7, Reporting on Advertising Costs, and FASB
Statement No. 91, Accounting for Nonrefundable Fees and Costs Associated
with Originating or Acquiring Loans and Initial Direct Costs of Leases, as a
basis for determining the kinds of costs of computer software developed or
obtained for internal use that should be included in amounts reported as
assets. AcSEC recognizes that the costs of some activities, such as allocated
overhead, may be part of the overall cost of assets, but it excluded such costs
because it believes that, as a practical matter, costs of accumulating and
assigning overhead to software projects would generally exceed the benefits
that would be derived from a “full costing” accounting approach. AcSEC
considered that costing systems for inventory and plant construction activities,
while sometimes complex, were necessary costs given the routine activities
that such systems support. Overhead costs associated with a particular inter-
nal-use software development project could be even more complex to measure
than production overhead and, as they most often represent an allocation
among capitalizable and expensed functions, may not be sufficiently reliable.
Moreover, certain users commented that they believe that overhead costs had
little relationship to the value of software. 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. 91 and to require such costs to be expensed as incurred.
Multiple-Element Software Arrangements Included in
Purchase Price
.81 This SOP requires that, when a software arrangement includes mul-
tiple elements, entities should estimate the fair value of those multiple ele-
ments and exclude the fair value of the appropriate elements from the
capitalized cost of the software. This approach is consistent with the treatment
of executory costs that are included in a lease payment to a lessor, but which
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20,428 Statements of Position
are not specified in the lease agreement. Paragraph 10 of FASB Statement No.
13, Accounting for Leases, requires the lessee to make an estimate of the
executory costs and exclude that amount from the minimum lease payments.
The treatment of the costs of the multiple elements specified here is consistent
with those provisions.
.82 In addition, AcSEC believes that the guidance related to recognizing
combined maintenance and unspecified upgrade/enhancement fees over the
contract period is consistent with paragraph 3 in FASB Technical Bulletin No.
90-1, Accounting for Separately Priced Extended Warranty and Product Main-
tenance Contracts.
.83 The SOP requires that entities allocate costs based on relative fair
values. AcSEC decided that the SOP should be consistent with SOP 97-2,
Software Revenue Recognition, though vendor-specific information is not as
relevant to this SOP.

Impairment
.84 AcSEC considered whether there were any alternatives to following
FASB Statement No. 121 for impairment of internal-use computer software.
AcSEC concluded that internal-use computer software is a long-lived asset
covered by FASB Statement No. 121.
.85 Paragraphs 7, 8, 10, and 15 of FASB Statement No. 121 are the basis
for the guidance in this SOP on accounting for internal-use computer software
that is not expected to provide substantive future service potential to an entity.
.86 AcSEC concluded that when it is no longer probable that computer
software being developed will be completed and placed in service, the asset
should be reported at the lower of carrying amount or fair value, if any, less
costs to sell, in accordance with FASB Statement No. 121. AcSEC believes that
uncompleted internal-use computer software is not likely to have any fair
value (measured in accordance with paragraph 7 of FASB Statement No. 121).
.87 A number of respondents to the exposure draft requested that AcSEC
provide more guidance and/or examples of how to recognize and measure
impairment of internal-use computer software. AcSEC concluded that there
are broader implications to this request and that if further guidance on
impairment is to be provided, it should be provided by the FASB.

Amortization
.88 AcSEC used Accounting Research Bulletin No. 43, Restatement and
Revision of Accounting Research Bulletins, chapter 9, section C, and APB
Opinion 17 as a basis for its conclusions on amortization. AcSEC decided not
to specify a maximum amortization period because each entity is better able to
determine an appropriate useful life.

Internal-Use Computer Software Marketed

.89 The SOP requires that entities use the cost recovery method of
accounting for internal-use computer software subsequently marketed. AcSEC
believes that this method will provide a reasonable reporting outcome for
instances in which enterprises find that internally developed software can
meet a market demand.

Disclosures
.90 In the spirit of minimizing less relevant disclosures, AcSEC decided
not to include any new disclosures in the exposure draft (though entities are
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 Accounting for Costs of Computer Software for Internal Use 20,429
required to follow disclosure requirements set forth in existing authoritative
literature). AcSEC continues to believe that existing authoritative literature
requires adequate disclosures to help meet financial statement user needs.

Effective Date and Transition

.91 AcSEC believes that the transition guidance in the SOP should be
comparable to that contained in FASB Statement No. 86. Some enterprises
that develop or purchase software for internal use currently expense those
costs as incurred. AcSEC believes that the costs of developing the information
that would be necessary to determine the amounts that would be capitalized if
this SOP were to be applied retroactively would exceed the benefits retroactive
application might offer and that such a retroactive determination should not
be made. However, AcSEC decided to permit but not require application in
financial statements for a fiscal year for which annual financial statements
have not been issued. AcSEC further concluded that costs capitalized before
the application of this SOP should be subject to the impairment and amortiza-
tion provisions in this SOP, but should not otherwise be adjusted to an amount
that would have been capitalized had this SOP been applied. Amortization and
impairment of previously capitalized costs in accordance with the provisions of
this SOP should result in an acceptable level of comparability and under-
standability.
.92 AcSEC considered whether it should provide materiality thresholds
to determine when an entity should follow the guidance in this SOP. AcSEC
decided not to do so because it believes an entity can best determine the
materiality of internal-use computer software costs in its individual circum-
stances.

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AICPA Technical Practice Aids §10,720.92
20,430 Statements of Position
.93

Appendix
Examples Illustrating When Computer Software Is for
Internal Use
1. A manufacturing entity purchases robots and customizes the software
that the robots use to function. The robots are used in a manufacturing
process that results in finished goods.
2. An entity develops software that helps it improve its cash management,
which may allow the entity to earn more revenue.
3. An entity purchases or develops software to process payroll, accounts
payable, and accounts receivable.
4. An entity purchases software related to the installation of an online
system used to keep membership data.
5. A travel agency purchases a software system to price vacation packages
and obtain airfares.
6. A bank develops software that allows a customer to withdraw cash,
inquire about balances, make loan payments, and execute wire transfers.
7. A mortgage loan servicing entity develops or purchases computer software
to enhance the speed of services provided to customers.
8. A telecommunications company develops software to run its switches that
are necessary for various telephone services such as voice mail and call
forwarding.
9. An entity is in the process of developing an accounts receivable system.
The software specifications meet the company’s internal needs and the
company did not have a marketing plan before or during the development
of the software. In addition, the company has not sold any of its internal-
use software in the past. Two years after completion of the project, the
company decided to market the product to recoup some or all of its costs.
10. A broker-dealer entity develops a software database and charges for
financial information distributed through the database.
11. An entity develops software to be used to create components of music
videos (for example, the software used to blend and change the faces of
models in music videos). The entity then sells the final music videos, which
do not contain the software, to another entity.
12. An entity purchases software to computerize a manual catalog and then
sells the manual catalog to the public.
13. A law firm develops an intranet research tool that allows firm members
to locate and search the firm’s databases for information relevant to their
cases. The system provides users with the ability to print cases, search for
related topics, and annotate their personal copies of the database.

Examples Illustrating When Computer Software Is Not

Internal Use
14. An entity sells software required to operate its products, such as robots,
electronic game systems, video cassette recorders, automobiles, voice-mail
systems, satellites, and cash registers.
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 Accounting for Costs of Computer Software for Internal Use 20,431
15. A pharmaceutical company buys machines and writes all of the software
that allows the machines to function. The pharmaceutical company then
sells the machines, which help control the dispensation of medication to
patients and help control inventory, to hospitals.
16. A semiconductor entity develops software embedded in a microcomputer
chip used in automobile electronic systems.
17. An entity purchases software to computerize a manual catalog and then
sells the computer version and the related software to the public.
18. A software company develops an operating system for sale and for internal
use. Though the specifications of the software meet the company’s internal
needs, the company had a marketing plan before the project was complete.
In addition, the company has a history of selling software that it also uses
internally and the plan has a reasonable possibility of being implemented.
19. An entity is developing software for a point-of-sale system. The system is
for internal use; however, a marketing plan is being developed concur-
rently with the software development. The plan has a reasonable possi-
bility of being implemented.
20. A telecommunications entity purchases computer software to be used in
research and development activities.
21. An entity incurs costs to develop computer software for another entity
under a contract with that other entity.

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AICPA Technical Practice Aids §10,720.93
20,432 Statements of Position

Accounting Standards Executive Committee

(1997–1998)

DAVID B. KAPLAN, Chair LOUIS W. MATUSIAK

MARK M. BIELSTEIN JAMES P. MCCOMB
JAMES L. BROWN CHARLES L. MCDONALD
JOSEPH H. CAPPALONGA ROGER H. MOLVAR
ROBERT O. DALE DAVID M. MORRIS
JOSEPH F. GRAZIANO BENJAMIN S. NEUHAUSEN
JAMES F. HARRINGTON MARK V. SEVER
JAMES W. LEDWITH

Internal-Use Software Costs Task Force

PHILIP D. AMEEN, Chair KEVIN W. MEAD

JOHN H. BLACK PAUL MUNTER
JAMES L. BROWN LYNN E. TURNER
WILLIAM R. HAHL

AICPA Staff

ELIZABETH A. FENDER DANIEL J. NOLL

Director Technical Manager
Accounting Standards Accounting Standards

[The next page is 20,441.]

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§10,720.93 Copyright © 1998, American Institute of Certified Public Accountants, Inc.