Facilitating SOP 98-1 for Software Development Capitalization
Organizations pursuing software development capitalization under SOP 98-1 guidelines can facilitate their efforts with TrackerSuite.Net.
TrackerSuite.Net is an integrated suite of Web based applications that simplifies compliance with SOP 98-1 guidelines for internal software projects, with solutions for project management, time and expense reporting, purchasing and payment requests that provide a structured environment that facilitate the capitalization of internal software projects, through:
- Configuring projects and tasks to identify and separate capital vs. non-capital budgets and work.
- Flagging financial items that can be capitalized.
- Real time reports on capitalization efforts, as well as measuring the efficiency of internal software assets against the performance of business processes they support.
As well as SOP 98-1, it can also be utilized to capture R&D tax credits for organizations whose R&D is outpacing their growth in revenue.
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Managing Internal Software Projects
TrackerSuite.Net facilitates the management and capitalization of internal software development projects by simplifying workflows, budget management and the tracking of capital and non-capital labor:
- Providing organizations workflows for project requisition, project templates and milestones that may be leveraged for the preliminary stage of an internal software project.
- Organizations can separate their budget on a capital and non-capital basis for these projects.
- In addition, project tasks can be assigned account codes, specifying whether the work is capital or non-capital.
ITrackerSuite.Net simplifies the tracking of labor costs and expenses for internal software projects through its applications for time and expense reporting, and purchasing:
- Using Web based timesheets, employees can charge time against tasks (including those with capital account codes).
- Employees can also charge expenses against projects and tasks, using to separate capital from non-capital software development expenditures (such as living expenses for contractors brought in for the project).
- Likewise, purchase orders and payment requests can be charged against projects and tasks. These forms also include a GL coding section where the total amount of the purchase or payment request can be divided against multiple account codes. Users can also charge GL codes against specific tasks in a project's WBS.
Finally, TrackerSuite.Net provides comprehensive reports on project costs and simplifies the measurement of results through its Web based reporting engine, the Tracker Data Warehouse:
- The progress of internal software projects can be reviewed, as well as capitalized labor and expenditure totals, with real-time reports including Project Portfolio Dashboards, Project Time Pies, Budget vs. Actual, Activity Ledgers and more.
- Reports can be configured for tracking the performance of processes, establish baselines and establish a need for the internal software project. Use the reports at post-implementation to measure the results.
Configure Capital and Non-Capital Project Budgets
Identify Capital Labor with Account Codes
Under SOP 98-1, companies are required to capitalize the costs associated with developing or purchasing software designated for internal use. Only certain costs may be capitalized, and only within particular stages of the internal software development project.
For example, the preliminary stage of an internal software project typically involves research of the technology to build the software. All incurred costs for research activity must be expensed, as they are not considered a direct cost of the software’s development.
Once the project moves into actual development, costs may be capitalized, but only external direct costs of materials and services utilized in developing or purchasing the software, not costs such as overhead. If the organization contracts outside developers for the project, it may capitalize the payroll (and certain payroll-related costs) for those developers, but not their living expenses such as housing or vehicle rentals.
If the organization chooses to purchase the software instead of developing it, they can only capitalize the actual software. Other costs, such as training, maintenance, typical data conversion routines, unspecified upgrades and re-engineering should be expensed as they are incurred.
Complying with SOP 98-1 offers organizations a means to improve the way they manage information technology, to clarify its value and capabilities on an ongoing basis, and encourage a review of existing software assets and their performance. In this regard it often dovetails with an organization’s Sarbanes Oxley / Purchase to Pay initiatives, providing justification for procuring software or development services for internal projects.