However, things are not always as they appear. The SOP applies to all nongovernment entities and must be adopted for fiscal years beginning after December 15, , although earlier adoption is encouraged. The objective here is to focus not on the requirements of SOP but, rather, on its intent in some of the tricky areas that will require management and auditor judgment. For software to be considered for internal use, the SOP requires that during its development or modification no substantive plan exists or is being developed to market the software externally. If an entity has or is working on such a plan, it must account for the software costs in accordance with FASB Statement no. Software costs capitalized under Statement no.

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The SOP covers all nongovernmental entities and applies to development-stage entities as well as established operating entities. It amends a number of SOPs and audit and accounting guides that address start-up costs.

These include organization costs, which were excluded from the definition in the exposure draft. Despite the title of the SOP, there are no disclosure requirements. AcSEC considered requiring such disclosures, but decided the costs outweighed the benefits. This decision goes hand in hand with another decision that it is not necessary to develop boundaries for when the start-up period begins and ends. What Is a Start-Up Activity? While the accounting may be easy to understand, the major ponderable is the definition of start-up activity.

The SOP defines start-up costs as "those one time activities related to opening a new facility, introducing a new product or service, conducting business in a new territory, conducting business with a new class of customer or beneficiary, initiating a new process in an existing facility, or commencing some new operation. Costs relating to the following are specifically excluded from the scope of the SOP: Acquiring or constructing long-lived assets and getting them ready for their intended use Inventory.


SOP 98-5-Reporting on the Costs of Start-Up Activities

Zudal For example, an entity may develop an accounting software system containing three elements; a general ledger, an accounts payable subledger, aipa an accounts receivable subledger. To aiccpa a copy of SOP product no. In determining and periodically reassessing the estimated useful life over which the costs incurred for internal-use computer software will be amortized, entities should consider the effects of obsolescence, technology, competition, and other economic factors. When it is no longer probable n7 that the computer software project will be completed and placed in service, no further costs should be capitalized, and guidance in paragraphs 34 and 35 on impairment should be applied to existing balances. Entities often license internal-use software from third parties. SOP brings uniformity to reporting start-up costs.


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SOP 98-5 brings uniformity to reporting start-up costs.



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