A Whitepaper from
Redstone Government Consulting

Does Federal Acquisition Regulations (FAR) or Cost Accounting Standards (CAS) provide specific requirements when it comes to accounting for costs related to software to be sold, leased, or marketed in the future? The simple answer is “no”, however, a review of FAR Part 31 certainly supports that the cost is allowable and allocable to both individual contracts and as a benefit to more than one contract, based on the nature of the software related effort, provided the cost is reasonable. For the purposes of this whitepaper, we are going to assume the cost is reasonable in both nature and amount based on the prudent person in the conduct of competitive business test in FAR 31.201-3, determining reasonableness.

So, what do government contractors do when FAR and CAS provide no guidance on how to account for a specific type of cost? FAR 31.201-2, Determining allowability, points to Generally Accepted Accounting Principles (GAAP) when FAR and CAS provide no specific guidance. Therefore, as instructed by FAR, we have turned to GAAP, Accounting Standards Codification (ASC) 985-20, Software: Cost of Software to Be Sold, Leased, or Marketed as our starting point and initial reference for this whitepaper. If it were only that easy.

To completely understand the accounting for software development costs a contractor may also need to consider the guidance in ASC 350-40, Internal-Use Software.

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