ASU 2025-06 Targeted Improvements to Internal-Use Software

What changed

The old ASC 350-40 keyed capitalization to which project stage a cost fell in, on top of a funding commitment and probable completion. ASU 2025-06 removes the stages and keeps the other two conditions, now named the probable-to-complete recognition threshold, and says the threshold is not met while significant development uncertainty exists. The FASB expects little change for most software, but less capitalization for software developed to be provided through a cloud computing arrangement. 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, the threshold is not met while significant development uncertainty exists. The ASU names two factors, either of which is enough: the software has technological innovations or novel, unique or unproven functions or features whose uncertainty has not been resolved through coding and testing, or its significant performance requirements have not been identified or are still being substantially revised ASU 2025-06. A novel model with unproven feasibility fails this test and its compute is expensed until the uncertainty is resolved.