ASC 985-20 Software to Be Sold, Leased or Marketed
ASC 985-20 governs software, including AI, that is part of a product an entity sells, leases or markets to customers. Costs incurred before technological feasibility is established are expensed as research and development; costs incurred after that point, until the product is available for general release, may be capitalisedS3. The feasibility point is the gate.
When ASC 985-20 applies instead of 350-40
The deciding question is whether the AI is for the entity's own internal use or is a component of a product delivered to customers. If a model is embedded in a product line that customers buy, licence or subscribe to as software, ASC 985-20 governs; if it runs an internal process, ASC 350-40 governsASC 985-20985-20-15. A single entity can have both, and the routing is decided per asset.
The technological feasibility gate
Technological feasibility is established when the entity has completed the planning, designing, coding and testing necessary to establish that the product can be produced to meet its design specifications, including functions, features and technical performance requirements ASC 985-20985-20-25.
Before feasibility → EXPENSEAfter feasibility, until general release → CAPITALISE
Applying the gate to an AI model
For a model that ships inside a product, the research and experimentation that precede a working, specification-meeting model are expensed. The engineering to productionise a feasible model up to general availability may be capitalised, then amortised. Because AI performance requirements can remain unsettled late into a build, establishing feasibility for a novel model is a documented judgement, not a date on a plan S3.
- S3Applying ASC 985-20 and ASC 350-40 to software costs, Crowe (US GAAP). https://www.crowe.com/insights/how-to-apply-asc-985-20-asc-350-40-software-costs
- S4FASB Accounting Standards Codification, PwC Viewpoint (US GAAP). https://viewpoint.pwc.com/dt/us/en/fasb/GAAP/Codification/Codification/228073.html