The probable-to-complete threshold
ASC 350-40 lets capitalization of internal-use software cost begin only once management has authorized and committed funding and it is probable the project will be completed and the software used for its intended function. ASU 2025-06 keeps that condition, names it the probable-to-complete recognition threshold, and removes the project stages, for annual periods beginning after 15 December 2027 ASU 2025-06. Applied to a training run, this means capitalization can begin only when completion and use are probable, not merely when the budget is approved.
What probable means here
Probable is the established high US GAAP threshold: the future event is likely to occur. For a training run it asks whether it is likely the run completes and the resulting model is put to its intended use. Approving spend is necessary but not sufficient; you also need a credible basis that the project will succeed and be deployed.
Applying it mid-project
Costs incurred before the threshold is met are expensed. Once it is met, subsequent directly attributable compute is capitalized. If completion later becomes improbable, stop capitalizing and test the asset for impairment.
Posts to
Primary sources
- [S7] FASB: ASU 2025-06, Intangibles, Goodwill and Other, Internal-Use Software (Subtopic 350-40): Targeted Improvements (issued September 2025; reproduces the amended ASC 350-40 text) (US GAAP)
- [S3] BDO: New ASU on internal-use software costs guidance (ASU 2025-06) (US GAAP)
Ledger current as of 2026-10-23. A position and a citation, not accounting advice. See how we cite.