Exploring Accounting Approaches in Support of Internal-use Software: A Multiple Case Study

Today, many corporations develop software for their internal use to fill their respective business needs. Proper accounting for internally developed software falls under the Financial Standards Board Guidance for intangible assets. The FASB provides information to accountants on what development costs should be expensed or capitalized. The approach to expense or capitalize is based on the software development life cycle (SDLC) phase of the project. Depending on what phase the project is in, the accounting treatment will be different. The problem investigated in this study was that company accountants continue to struggle with the determination of software development life cycle phase as part of properly accounting for internal-use software within their organizations. The purpose of this qualitative method of inquiry and multiple case study design was to explore various approaches used by accountants in the determination of software development life cycle phase movement. In addition, the intent of the study is to explore the role that the PMO had in aiding accountants in making this determination. Participants in this study were accounting managers from four publicly traded corporations within the Southeastern United States. Data was collected and analyzed through the use of interviews, observations, and document review of archival records. The results of this study indicated that a combination of processes aided accountants in determining phase movement information and that the PMO alone was not responsible for providing phase movement information. The analysis of the study data indicated that a combination of policies, system reports, communications and approvals obtained by accountants were used in phase movement determination. Because this case study employed a small sample size located with a limited region in the US, it is recommended to use a larger population of publicly traded corporations be obtained from across the United States. Further research may involve the use of a quantitative approach to collaborate the findings from this qualitative study, possibly focused on the perspective of internal and external auditors to determine phase movement. In conclusion, this study has provided best practice information to accountants and auditors in support of this area of intangibles accounting.