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Yes. Software can be an intangible asset because it has no physical substance, and IAS 38 explicitly lists computer software as an example. But that does not mean every software-related payment is recorded as an asset. The accounting depends on the applicable rules, what rights the purchaser receives, the software’s purpose, and the type and timing of the costs.
What makes software an intangible asset?
An intangible asset is a nonphysical resource that may qualify for recognition under the accounting framework that applies to an organization. Software fits the category in nature: the IFRS Foundation lists computer software among IAS 38’s examples of intangible assets. The key distinction is between what software is and whether a particular cost can be recognized as an asset. A purchase, development project, subscription, or maintenance payment can receive different treatment even though each relates to software.
For a financial statement conclusion, identify the reporting framework and period, read the relevant contract and rights, and classify the expenditure. A broad label such as “software cost” is not enough to determine accounting treatment.
How IFRS treats software under IAS 38
Under IFRS, IAS 38 governs intangible assets. For internally generated software, the standard distinguishes research from development: research expenditure is expensed, while development expenditure is recognized as an asset only if the IAS 38 recognition criteria are met. The fact that a project produces software does not by itself establish that its costs qualify for capitalization.
The IFRS Foundation’s overview confirms this general distinction but does not set out every criterion or resolve every implementation scenario. For a specific reporting decision, consult IAS 38 as applicable to the entity and reporting period rather than relying on the general description alone.
How U.S. GAAP distinguishes software arrangements
U.S. GAAP has separate guidance for internal-use software and software to be sold, leased, or otherwise marketed. The IRS describes internal-use software under ASC 350-40 and externally marketed software under ASC 985-20. Which category applies depends on the arrangement and the rights involved—not simply on whether the software is accessed through a browser.
The IRS’s examples distinguish software customers can take possession of and run from online software accessed as a service where customers do not obtain the software or a future right to use it. The IRS page is explanatory material, not an official pronouncement of law. The FASB Codification is the single official source of authoritative, nongovernmental U.S. GAAP; entities making technical decisions should verify the applicable Codification guidance and updates.
Software purchase, SaaS, and implementation costs are not interchangeable
| Arrangement or cost | What to examine | Accounting point established by the cited guidance |
|---|---|---|
| Internally generated software under IFRS | Whether expenditure is research or development, and whether the IAS 38 criteria are met | Research expenditure is expensed; qualifying development expenditure is recognized as an asset under IAS 38. IFRS Foundation, IAS 38 overview. |
| Internal-use software under U.S. GAAP | Whether the software is for internal use and the applicable ASC 350-40 requirements | ASC 350-40 is the relevant internal-use software subtopic described by the IRS. Consult the FASB Codification for authoritative requirements. IRS FAQ; FASB Accounting Standards Codification. |
| Software to be sold, leased, or otherwise marketed | Whether the software is intended for external sale, lease, or marketing | ASC 985-20 is the U.S. GAAP subtopic identified for this category. Detailed recognition conclusions require the Codification. IRS FAQ; FASB Accounting Standards Codification. |
| Online software service or SaaS | Whether the customer receives a software license or only access to a hosted service | Online access without possession of the software or a future right to use it is distinguished from software customers can take and run. Contract-specific analysis is necessary. IRS FAQ. |
| Hosted arrangement that transfers a software license | Whether the customer acquires a license, even though the software is hosted | Federal Reserve guidance describes recognition of an intangible asset and a corresponding liability for unpaid amounts, unless prepaid, when a customer acquires a software license in this context. Federal Reserve guidance. |
| Configuration or customization of cloud software | Whether additional code is identifiable and meets the applicable asset recognition criteria | The general sources cited here do not settle every SaaS configuration fact pattern. Analyze the contract and applicable standard for the reporting framework and period. |
Implementation, maintenance, training, and data-conversion costs should not be assumed to follow the same treatment as the software license or development expenditure. Their accounting depends on the facts and applicable guidance; the sources cited here do not establish a universal rule for each category.
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What changes under FASB ASU 2025-06?
FASB Accounting Standards Update 2025-06 amends ASC 350-40 by removing references to prescriptive and sequential software-development project stages. It is effective for annual reporting periods beginning after December 15, 2027, including interim periods within those annual periods. It is therefore not generally effective for reporting periods beginning in 2026. Review the update’s transition and early-adoption provisions before applying it to an entity’s circumstances.
FASB Accounting Standards Updates
A practical way to assess a software cost
- Identify the framework and period. Determine whether the financial statements use IFRS or U.S. GAAP and which requirements apply to the reporting period.
- Read the contract for rights. Establish whether the entity owns or receives a software license, can take possession and run the software, or only accesses a hosted service.
- Identify the software’s purpose. Under U.S. GAAP, distinguish internal use from software intended for sale, lease, or other marketing.
- Separate the costs by nature and timing. Distinguish research, development, license, implementation or configuration, maintenance, training, and data-conversion expenditure rather than treating them as one software balance.
- Apply the relevant recognition guidance. For IFRS development expenditure, assess the IAS 38 criteria. For U.S. GAAP, consult the applicable Codification subtopic and relevant ASUs.
- Document the conclusion. Record the rights, purpose, cost categories, relevant guidance, and reporting-period version that support the treatment.
Bottom line on software as an intangible asset
Software can be an intangible asset, but capitalization is conditional rather than automatic. IAS 38 recognizes qualifying software-related development expenditure only when its criteria are met; U.S. GAAP treatment depends in part on whether software is for internal use, external marketing, or provided through a service or license arrangement. The contract, the costs being assessed, and the reporting framework determine the result.
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