more-arw search

Q&A Forum

Capitalized Software Implementation Costs - from the seller's side

Our company provides hosted SaaS which we recognize under ASU 2009-13 via BESP.

Currently, we capitalize "direct & incremental costs" - such as commission to the sales people, 3rd party costs, etc - and then amortize them over the revenue generating life of the contract.

We do not capitalize the hours our implementation engineers spend working on the actual set up (which we do track and can attach a $$ figure to by customer and contract) - because our auditors say they are not "direct & incremental"

Does anyone else who sells hosted SaaS capitalize & amortize the labor costs associated with bringing a customer on board? If so, what guidance/interpretations are you relying on?

Many company's 10-ks (for hosted SaaS company’s) say the do capitalize implementation costs - but they don’t actually spell out if it includes labor or not, which of course is the biggest component in our installations.

If we can track & capitalize software development costs for creating intangibles under ASC 350-40, why can't we capitalize & amortize the set up costs for our customer installations? What's the fundamental difference?

Thanks

Answers

(Agent, JKS Solutions, Inc.) |

From your question details, you might be mixing concepts.

Is your SAAS developed for internal use? Or are you marketing it for sale?

If you are developing software for sale you need to use the guidance about accounting for that type of development rather than the guidance about developing internal use software.

Below are some options.

ASC 350-40: Internal-Use Software
--> AICPA SOP 98-1
--> "Accounting for the Costs of Computer Software Developed or Obtained for Internal Use"

ASC 985-20: Costs of Software to Be Sold, Leased, or Marketed
--> SFAS 86, August 1985
--> "Accounting for the Costs of Computer Software to Be Sold, Leased, or Otherwise Marketed"

ASC 985-605: Software Revenue Recognition
--> AICPA SOP 97-2
--> "Software Revenue Recognition"

I don't know what BESP is, but if its the online dictionary that will not be the best resource for you. This topic is complex. Use the FASB.org resources for best result. Or get a Copy of Wiley GAAP.

Yes you will need to figure out what types of labor need to be capitalized and you will need to coordinate those decisions with your tax people.

2883 views
Topics

Get Free Membership

By signing up, you will receive emails from Proformative regarding Proformative programs, events, community news and activity. You can withdraw your consent at any time. Contact Us.

Business Exchange

Browse the Business Exchange to find information, resources and peer reviews to help you select the right solution for your business.

Learn more

Contribute to Community

If you’re interested in learning more about contributing to your Proformative community, we have many ways for you to get involved. Please email content@proformative.com to learn more about becoming a speaker or contributing to the blogs/Q&A Forum.