GASB 51 and Internally Generated Software
GASB 51 and Internally Generated Software
By Jennifer Robinson, Financial Management Coordinator, Office of the State Controller
The Governmental Accounting Standards Board (GASB) has issued statement number 51 – Accounting and Financial Reporting for Intangible Assets. The State of Maine is required to implement this statement in state fiscal year 2010, which begins July 1, 2009.
An intangible asset is an asset that is not physical or financial in nature. Governments own many different types of assets that are considered intangible, including easements, water rights, timber rights, patents, trademarks, and computer software. Intangible assets can be purchased or licensed (which includes acquisition through an installment contract), or internally generated. GASB 51 is now requiring that intangible assets, including software (internally generated as well as purchased), to be classified as capital assets on the State’s financial statements. The biggest challenge in implementing this standard for many governments, including the State of Maine, will be to properly capture all the costs associated with internally generated computer software.
What does this mean for Office of Information Technology (OIT) staff? All costs associated with internally generated software projects, including personnel costs will have to be tracked by project and stage (preliminary, application development, and post-implementation).
Projects and personnel time should be broken out by the three stages related to developing and installing internally generated software as follows:
- Preliminary Project Stage – activities include conceptual formulation and evaluation of alternatives, determination of the existence of needed technology, and final selection of alternatives for the development of the software.
- Application Development Stage – activities include the design of the chosen path, including software configuration and software interfaces, coding, installation of hardware, and testing.
- Post-Implementation/Operation Stage – activities include application training and software maintenance.
Only costs related to the application development stage should be capitalized. Examples of such costs are:
- Payroll & payroll related costs for employees directly associated with development (i.e., programmers and testers);
- External direct costs of materials and services.
Costs related to overhead should not be capitalized. Training of employees involved with developing internally generated software should not be considered part of the application development stage, and should be expensed.
Internally generated computer software is likely the most prevalent type of internally generated intangible asset, and it is the most significant in terms of outlay for state governments. The largest cost associated with internally generated software is almost certainly personnel costs. Accurate record of time spent on these projects is crucial to comply with this new GASB standard. How can OIT staff accurately and effectively track time spent on software projects? The Maine State – Time and Attendance Management System (MS-TAMS) is designed for State employees to record their time worked and is a valuable tool that can be utilized to ensure we meet these new requirements.
We have met with the Information Technology Project Management Discussion Group, and are currently working with this group as well as OIT management to develop policies and procedures for the tracking of costs for internally generated computer software. We plan to utilize the portfolio management process that is in place at present as an aid to track projects for GASB 51 purposes. Tracking of software projects will be required for projects that enter the application development stage after June 30, 2009. More information will be forthcoming as decisions regarding scope and internal process are made.
