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Business and Policy Areas
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Advisory Report 1999-7

July 8, 1999

Accounting and Reporting for Capitalization of Software

POSITION PAPER PREPARED BY NACUBO ACCOUNTING PRINCIPLES COUNCIL

The position paper that follows was approved in April 1999 by the NACUBO Accounting Principles Council. The paper represents preferred industry practice, and in the absence of any guidance from the Financial Accounting Standards Board (FASB), the Governmental Accounting Standards Board (GASB), or the American Institute of Certified Public Accountants (AICPA), this document should be followed by all higher education institutions.

Purpose: NACUBO has reviewed certain accountability issues pertaining to the recognition and measurement of costs associated with developing or acquiring computer software intended for internal use. The American Institute of Certified Public Accountants (AICPA) issued Statement of Position (SOP) 98-1 in April, 1998, which provides guidance concerning this issue. SOP 98-1 provides guidance on accounting by all nongovernmental entities, including not-for-profit organizations, for the costs of computer software developed or obtained for internal use and provides guidance for determining whether computer software is for internal use. Given the latitude provided by the FASB, GASB and AICPA, NACUBO adopts SOP 98-1 as the industry standard and makes it applicable to public not-for-profit higher education institutions.

Applicability: This position paper applies to all public higher education institutions.

Scope: This position paper addresses the adoption by NACUBO of SOP 98-1 as an industry standard for public not-for-profit higher education institutions.

Significance: The adoption of SOP 98-1 will provide industrywide comparability in the area of accounting for the costs of computer software developed or obtained for internal use. The adoption will also provide interim guidance to public not-for-profit higher education institutions that desire to capitalize the costs of computer software developed or obtained for internal use and want to be consistent and comparable within the industry.

Effective Date: The requirements of this document are effective for all higher education institutions for fiscal years beginning June 15, 1999, with earlier application recommended.