SFFAS 10
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requirements in SFFAS No. 4, Managerial Cost Accounting Concepts and Standards for the
Federal Government, believing that the Board would not be consistent with this standard
unless full cost accounting were adopted.
60. The Board had reserved final judgment on the issue of capitalizing indirect cost at the time
the ED was published. Several of the Board’s members had argued that capitalizing only
direct cost was inconsistent with SFFAS No. 4. Also, some Board members felt that, if the
standard not did require indirect cost to be capitalized, the cost of internally developed
internal use software would not be comparable with COTS and contractor-developed
software, which would include indirect cost.
61. After reconsidering the issue, the Board is persuaded that SFFAS No. 4 requires both direct
and indirect costs to be capitalized. Moreover, the new federal capital programming
guidelines
15
require full life-cycle cost to be tracked, which is a more extensive requirement
than that required by this standard, since it includes cost that would be expensed for
accounting purposes.
16
Also, software asset values will be comparable among internally
developed, COTS and contractor-developed software.
Commencing Capitalization
62. Two-thirds of the respondents agreed that capitalization should begin as described in
par. 21 of the ED (and par. 16 of this standard): that is, when (1) management authorizes
and commits to a software project and believes that it is more likely than not that the
software will be completed and (2) the preliminary design stage is complete. Two of these
respondents noted that the standard was consistent in this regard with the American
Institute of Certified Public Accountant’s (AICPA) draft Statement of Position (SOP).
17
Six
other respondents would begin to capitalize only when “technological feasibility” is
demonstrated.
18
Other respondents either would not capitalize internal use software under
any circumstances or only COTS software.
15
The Office of Management and Budget’s (OMB) Capital Programming Guide, Supplement to OMB Circular A-11, Part
3 (July 1997), integrates the various executive branch and statutory asset management initiatives, including the
Government Performance and Results Act, the Clinger-Cohen Act, and the Federal Acquisition Streamlining Act, into a
single, integrated capital-programming guide.
16
“Capital assets are land, structures, equipment, and intellectual property (including software) that ... have an
estimated life of two years or more... The cost of a capital asset is its full life-cycle cost, including all direct and indirect
cost for planning, procurement ... operations and maintenance, including service contracts and disposal.” Capital
Programming Guide, version 1.0, definition of capital asset, p. i (July 1997).
17
Published March 4, 1998 as SOP No. 98-1.
18
“Technological feasibility” is the criteria that the Financial Accounting Standards Board (FASB) used in Statement of
Financial Accounting Standards (SFAS) No. 86, Accounting for the Costs of Computer Software to Be Sold, Leased, or
Otherwise Marketed.