Can You Capitalise Software As A Service. Impact on Cash Flows. In summary companies that provide SaaS products can ultimately apply the guidance in ASC 350-40 if they determine that the software product provided is not physically delivered to the customer including access to the source code either during or at the end of the hosting period and that it is not feasible for the customer to run the software on its own hardware.
Under a traditional ERP model with licensed software a company can only capitalize certain implementation costs - basically those associated with application development. The customer has the contractual right to take possession of the software at any time during the hosting period without significant penalty and 2. ASU 2018-05 also requires the entity customer to expense the capitalized implementation costs of a hosting arrangement that is a service contract over the term of the hosting arrangement.
In summary companies that provide SaaS products can ultimately apply the guidance in ASC 350-40 if they determine that the software product provided is not physically delivered to the customer including access to the source code either during or at the end of the hosting period and that it is not feasible for the customer to run the software on its own hardware.
The myth that its special in this regard or overly challenging is just that a myth. For a company that utilizes an off-the-shelf software package for their general ledger the cost of the software would be capitalized along with the costs of any future upgrades. Materials and services consumed in the development effort such as third party development fees software purchase costs and travel costs related to development work. Software as a service capitalization is obviously just as doable as capitalization on any other industry.