Our Transparency Report seeks to explain the steps that we take to uphold our professional obligations and responsibilities and how we ensure delivery of the highest quality in all of our services.
We are proud to be partnering with Action for Literacy and Shelter to enable us to play a greater part in tackling the key issues of literacy and homelessness in the UK today.
The UK Banks Performance Benchmarking Report explores the key trends in the first half results of the big five UK headquartered banks – Barclays, HSBC, Lloyds Banking Group, RBS and Standard Chartered.
Interactive Infrastructure offers a snapshot of the face and future of UK infrastructure pipeline using an interactive platform to connect infrastructure stakeholders at an early stage in the development of projects.
KPMG has recently published the 2013 Guide to Directors’ Remuneration, a survey which analyses trends in FTSE 350 directors’ pay.
Corporate reporting in its widest sense has an important role to play in restoring trust. There is a groundswell of opinion that things aren’t quite right. But it’s not enough to acknowledge it. I believe that it’s time for change.
Explore your options in our e-zine, where you’ll find out more about whether our Audit, Risk Consulting or Gap Programme is for you.
If you’re not a little bit scared, you’re not paying attention. Find out more about our graduate programmes in audit, tax, advisory and central services.
Keep up to date with the latest news and views from KPMG in the UK by following our twitter feed.
KPMG’s leadership blogs brings you insight, opinion and debate from our senior partners and industry experts.
The 2013 edition of our Alumni magazine, Connected, features Alumni profiles, as well as articles about Cyber Security and Tax Transparency. Regional variations for Scotland, North, Midlands and South are also available
Over 11,000 of our alumni are registered on LinkedIn. We have established the KPMG UK Alumni group to enable you to contact many of our past and current people who are members.
Hello, my name is Krista Pound and I work in the US Accounting & Reporting Group at KPMG in London. The focus of this session will be on internally developed software either for internal use or to be marketed. Each of these outcomes may result in a different assessment under US GAAP. I should note that this discussion however does not include intangible assets acquired in a business combination.
First of all I wanted to remind you of the general principle that the cost of internally developing, maintaining or restoring intangible assets that are not specifically identifiable, have indeterminate lives, or that are inherent in continuing a business and entity as a whole should be recognized as an expense when incurred.
The exceptions being Internal-use software Website development costs Costs incurred to develop software for sale after technological feasibility has been established.
First I will cover how US GAAP treats development costs incurred in relation to software to be used internally. The guidance aligns the treatment to the life-cycle of the product. What I mean is simply that in the early phase of development, costs are expensed, then there is a period of capitalisation until the product is in a useable state at which time capitalisation ceases. Costs incurred after that period are also expensed and the capitalised costs are amortised over the estimated useful life of the software from the point at which it starts being used. US GAAP sets out the following specific stages:1. Preliminary project stage- entities should expense all costs when incurred2. In the Application development stage, certain costs should be capitalized a. Capitalized costs are only: – External direct costs of materials and services – Payroll and payroll-related costs – Interest costs3. Finally, in the Post-implementation or operating stage, all costs are again expensed as incurred
I should note that acquired software for internal use is treated similarly to any other property, plant and equipment – you would capitalise the cost of the asset and amortise it over its estimated useful life. But don’t forget about impairment testing!
Next I want to touch on website development costs – the treatment being very similar.• During the planning stage, expense all costs when incurred.• During the website application and infrastructure development stage, certain costs (similar to those previously discussed for internal use software) should be capitalized. - Also, during the graphics development stage, certain costs should be capitalized.• During the operating stage, expense all costs when incurred.
US GAAP does not require the demonstration of probable future benefit in order to capitalize website development costs.
However, under IFRS, website costs still have to meet the recognition criteria within IAS 38. And it is doubtful that promotional or marketing websites would be able to prove probable future economic benefit and, therefore, the related development costs related should be expensed when incurred.
Finally, I want to discuss development costs incurred in relation to software to be sold, leased or otherwise marketed. The US GAAP guidance here is also linked to the development cycle of the product but it sits in industry specific guidance in the FASB codification. • Firstly, all Costs incurred to establish technological feasibility are to be expensed as incurred.• After that, the Cost of producing product masters (after technological feasibility is established) are capitalized.• When the product is available for general release to customers (on a product-by-product basis), entities would cease capitalization and begin amortization • In addition, costs for maintenance and customer support would also be expensed.
A few points on the useful life to be assigned to these intangible assets: Indefinite life is a life that extends beyond the foreseeable horizon. − Indefinite does not mean infinite − Unknown does not mean infinite If not indefinite useful life, amortize over that period and review for impairment in as you would for property, plant and equipment. If indefinite useful life, do not amortize but test for impairment annually
Now for the practical points:The difficult part of applying this literature is when it isn’t considered upfront and the system of internal control is not present to track the costs incurred and the life cycle of the product or system being developed.
For example, a start-up technology company develops a software platform and then starts selling services based on that platform or sells the software itself as a product. Down the line, the company looks to develop their accounting policies under US GAAP. Trying to go back to capture the costs and outline the period of development can prove difficult- people have left that were involved, developers worked on more than 1 project at a time, timesheets were not kept, etc. Further, the accounting concept, although understood in finance, does not translate as easily to the technology team or developers, yet the application of the literature is not a choice – a company cannot simply choose to expense all costs as incurred just because they haven’t developed a methodology for applying the guidance. Ie there is no ‘easy way out’. So it is key for companies to have a tracking mechanism in place. I will say however that in the software space, it is not uncommon for very few costs being capitalised due to the short period of time between reaching technological feasibility and product release.
Just to point out for your reference, the key authoritative literature sits in the FASB codification as follows:– ASC Subtopic 350-40 – Internal Use Software and Website Development Costs– ASC Subtopic 350-50 - Website Development Costs– ASC Subtopic 985-20 – Software – Costs of Computer Software to be Sold, Leased or Marketed
In this video Krista Pound from KPMG’s US Accounting & Reporting Group discusses how to capitalise intellectual property.
This video is also available on our YouTube channel.
KPMG LLP, a UK limited liability partnership, is a subsidiary of KPMG Europe LLP and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative, a Swiss entity. All rights reserved.
KPMG International Cooperative ("KPMG International") is a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firm vis-à-vis third parties, nor does KPMG International have any such authority to obligate or bind any member firm.