ASU 2025-06 Targeted Improvements to Internal-Use Software

The prior guidance keyed capitalisation to sequential project stages, a model that fitted waterfall development but not agile or iterative AI work. ASU 2025-06 removes the preliminary, application-development and post-implementation stage references and makes recognition neutral to development methodologyASU 2025-06^S5.

Under the amended guidance, an entity begins capitalising software costs when both conditions hold: management has authorised and committed to funding the project, and it is probable that the project will be completed and the software will be used to perform the function intended ^S5. Both conditions are required; funding alone is not enough.

Capitalisation is deferred while significant development uncertainty remains. That uncertainty exists where the software has novel, unique or unproven functionality with unresolved uncertainty after coding and testing, or where the performance requirements are not yet defined or remain subject to major revision^S5. This is the condition that most directly affects frontier AI models, and it can block capitalisation even after funding is committed.

ASU 2025-06 is effective for all entities for annual reporting periods beginning after 15 December 2027, with early adoption permitted ^S5. For a reporting period before adoption, the ASC 350-40 stage model still governs, so a controller should confirm which basis applies to the period being reported.