FASB's new software cost guidance

Nov 11, 2025

Join Pat Durbin, a seasoned Deputy Chief Accountant at PwC, and Mike Coleman, a partner specializing in software accounting, as they unravel FASB's new guidance on internal-use software costs. They discuss the shifts from traditional licensing to cloud delivery and the resulting accounting implications. Key topics include the revised capitalization criteria, the complexities of 'significant development uncertainty,' and the evolving landscape of AI-related software development. Their insights will help you navigate this critical change with confidence!

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INSIGHT

Why FASB Focused Only On Internal‑Use

The FASB focused changes only on internal‑use software because external guidance already aligned with development practices.
The board made targeted improvements rather than a wholesale rewrite to address cloud and agile development.

INSIGHT

Project Narrowed From One Model To Targeted Fixes

The project started aiming for one unified model but ended with a lighter, more nuanced update.
Changes are targeted and more flexible, with greater impact for cloud/SaaS developers.

INSIGHT

Transfer Vs. Access Determines Accounting

Externally licensed software transfers code to a customer, while internal‑use software is developed for an entity's own use.
Delivery mechanism (transfer vs. access) drives the accounting distinction, not development activities.

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In this episode, we explore the FASB’s new software cost guidance and its impact on accounting for internal‑use software—what’s in scope, how to evaluate the revised capitalization criteria, the effective date and transition, and other key changes. We also take a deeper dive into AI‑related software development.

In this episode, we discuss:

0:00 – Background and scope on the FASB’s new ASU on internal-use software costs
11:10 – Capitalization criteria, including “significant development uncertainty”
20:38 – Examples of evaluating “significant development uncertainty”
30:50 – Other insights and updates related to the software costs guidance
34:00 – Effective date of the ASU and transition methods
37:41 – Accounting considerations for AI-related software development

For more: FASB updates software cost guidance, Software costs guide

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About our guests

Pat Durbin is a PwC National Office Deputy Chief Accountant. He has over 30 years of experience consulting with our clients and engagement teams on complex accounting matters, including issues related to revenue, compensation, income taxes, and inventory under both US GAAP and IFRS.

Mike Coleman is a partner in PwC's National Office who specializes in accounting for revenue and software arrangements and has served technology clients for much of his career. In addition, Mike has represented the firm on the AICPA Software Task Force.

About our host

Heather Horn is the PwC National Office Sustainability and Thought Leader, responsible for developing our communications strategy and conveying firm positions on accounting, financial reporting, and sustainability matters. In addition, she is part of PwC’s global sustainability leadership team, developing interpretive guidance and consulting with companies as they transition from voluntary to mandatory sustainability reporting. She is also the engaging host of PwC’s accounting and reporting weekly podcast and quarterly webcast series.

Transcripts available upon request for individuals who may need a disability-related accommodation. Please send requests to us_podcast@pwc.com

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