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Technology Spotlight: Accounting for AI costs associated with internal-use software development
Accounting for AI software development costs
Artificial intelligence is rapidly transforming how companies develop software. As AI agents and tools become increasingly integrated into the software development life cycle, organizations are shifting from a predominantly human-driven development model to one that incorporates AI-enabled tools and services. While AI may accelerate software development, it also raises important accounting questions about whether AI-related software development costs should be capitalized or expensed.
Our latest Technology Spotlight explores these considerations and explains how existing internal-use software guidance ASC 350-40, applies when AI is used in software development. While the underlying accounting framework remains unchanged, organizations may need enhanced processes, attribution methodologies, and controls to identify and support capitalized software costs that are directly attributable to qualifying software development activities.
The publication also provides illustrative Q&A’s that demonstrate how entities may evaluate AI-related costs are eligible for capitalization based on the nature and usage of the AI services, including token consumption, the specific development activities performed, and the ability to directly attribute costs eligible for capitalization. This can be particularly challenging when AI tools are used across multiple projects, productivity activities, and business functions.
For a deeper look at the accounting considerations and guidance related to capitalizing AI development costs associated with AI internal-use software, read the full “Technology Spotlight: Accounting for AI costs associated with internal-use software development.”
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