Internal-use software
Internal-use software is software an entity develops or obtains solely to meet its own internal needs, where there is no substantive plan to market it externally. It is governed by ASC 350-40. An internal AI system that automates a process for the entity, rather than being sold to customers, typically falls in this scope.
In scope and out of scope
In scope: systems built to run the entity's own operations. Out of scope: software that is part of a product sold, leased or marketed to customers, which is governed by ASC 985-20 ASC 350-40350-40-15. The deciding factor is the intended use at the time of development.
How an internal AI system qualifies
An in-house model that scores, routes or automates an internal process, and is not marketed, is internal-use software. Its qualifying application-development costs may be capitalised, subject to the probable-to-complete threshold once ASU 2025-06 is adoptedASU 2025-06.
- 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