Buying or developing new software? Know which guidance to use

With companies increasing their expenditures on technology, including software and related services, questions about how to account for these costs are becoming more common. To help navigate the accounting and reporting guidance in this area, PwC partners Mike Coleman and Angela Fergason join Heather Horn to discuss what you need to know about accounting for software costs. Topics include:0:47 -Determine the appropriate accounting model. When companies incur costs on new software—either developed for internal or external use or purchasing it from a vendor—sometimes the most challenging part is navigating which accounting model to apply. Mike and Angela share similarities across three primary models and highlight important reporting differences. Summarizing each model, we address:3:01 - Externally-marketed software9:51 - Internal-use software 16:03 - Cloud computing (service) costs20:31 - Final reminders. We close by going through a few other types of expenses with accounting impacted by which model is used, and re-emphasizing the reporting differences. Michael Coleman is a partner in PwC's National Office with over 30 years of experience specializing in accounting for revenue and software arrangements. In addition, Mike has been one of the firm's representatives on the AICPA Software Task Force. Prior to his time in National, Mike was an audit partner in the firm's NY Metro assurance practice serving technology clients.  Angela Fergason is a partner in PwC's National Office with over 20 years of experience who specializes in accounting for revenue and employee compensation arrangements. She is  a frequent speaker on accounting and financial reporting topics and is a contributor to many PwC National Office publications, including our accounting guides on revenue and stock-based compensation. Heather Horn is PwC’s National office thought leader, responsible for developing our communications strategy and conveying firm positions on accounting and financial reporting matters. She is the engaging host of PwC’s accounting and reporting weekly podcast and quarterly webcast series, as well as periodic webcasts for the power and utilities industry. With over 25 years of experience, Heather’s accounting and auditing expertise includes financial instruments and rate-regulated accounting.Transcripts available upon request for individuals who may need a disability-related accommodation. Please send requests to [email protected].