Post-implementation and operation stage
Once the software is placed in service, the project enters the post-implementation and operation stage. ASC 350-40 expenses these costs as incurred, including maintenance, monitoring, routine retraining and inference. Only an upgrade or enhancement that adds new functionality can be capitalised, and then on the same qualifying-cost basisS2.
What falls after go-live
Monitoring model performance, routine retraining on fresh data to maintain accuracy, bug fixes, hosting and running inference are operating activities. They keep an existing asset working rather than creating a new one, so they are expensedASC 350-40350-40-25.
Operating and maintenance → EXPENSE
The upgrade exception
An upgrade or enhancement that adds functionality the software did not previously have can be capitalised, on the same qualifying-cost basis as the original application-development stage S2. The judgement is whether the work adds new capability or merely maintains existing capability. Retraining to restore prior accuracy is maintenance; building a materially new capability is an enhancement.
Why continuous AI retraining rarely capitalises
Many AI systems retrain continuously to counter drift. Because that activity sustains the existing model rather than adding new functionality, the recurring cost is generally expensed. This is a frequent point of challenge, so the distinction between maintenance retraining and a functional enhancement should be documented.
- S2Handbook: Software and website costs (ASC 350-40 internal-use software), KPMG (US GAAP). https://kpmg.com/us/en/frv/reference-library/2026/handbook-software-website-costs.html
- S4FASB Accounting Standards Codification, PwC Viewpoint (US GAAP). https://viewpoint.pwc.com/dt/us/en/fasb/GAAP/Codification/Codification/228073.html