When does ASU 2025-06 take effect?

For annual reporting periods beginning after 15 December 2027, with early adoption permitted. Until adoption, the existing ASC 350-40 project-stage model applies.

Does committing the budget for a training run let me capitalize it?

Not on its own. You also need it probable the project completes and no significant uncertainty that the work produces usable software.

ASU 2025-06

ASU 2025-06 Targeted Improvements to Internal-Use Software

The posting

ASU 2025-06 amends ASC 350-40 by removing the preliminary, application-development and post-implementation stage model. Instead, an entity capitalizes internal-use software costs once management has authorized and committed to funding the project and it is probable the project will complete and the software will be used. Capitalization is blocked while there is significant uncertainty that the activities will produce usable software ASU 2025-06. Effective for annual periods beginning after 15 December 2027, early adoption permitted.

What changed

The old ASC 350-40 keyed capitalization to which project stage a cost fell in. ASU 2025-06 replaces that with two conditions that must both hold before development-stage costs are capitalized: a probable-to-complete threshold and the absence of significant development uncertainty. This matters directly for AI, where a training run can consume large compute before anyone knows the model will work.

The probable-to-complete threshold

Capitalization can begin when management has authorized and committed funding and it is probable the project will be completed and the resulting software used for its intended purpose ASU 2025-06. Probable is the same high threshold used elsewhere in US GAAP; it is a judgement the buyer must evidence, not a formality that committing a budget satisfies.

The significant-development-uncertainty gate

Even with funding committed, capitalization is blocked while significant uncertainty remains about whether the development work will result in software that performs as intended ASU 2025-06. A novel model with unproven feasibility fails this gate and its compute is expensed until the uncertainty is resolved.

Questions this posts answers

When does ASU 2025-06 take effect?: For annual reporting periods beginning after 15 December 2027, with early adoption permitted. Until adoption, the existing ASC 350-40 project-stage model applies.
Does committing the budget for a training run let me capitalize it?: Not on its own. You also need it probable the project completes and no significant uncertainty that the work produces usable software.

Instruments and mechanics this standard decides

Primary sources

Ledger current as of 2026-07-24. A position and a citation, not accounting advice. See how we cite.