Software Capitalization Policy
Purpose
Purpose: To provide guidance for the accounting of costs for software purchase and/or development and implementation of software for internal use. This includes consideration of software accessed through the cloud and software as a service (SaaS) arrangement.
Scope: Software project costs, inclusive of applicable internal labor (see information below), in excess of $100,000 will be considered for capitalization. Software projects less than $100,000 will be expensed.
Initiation of Software Project:
- Speak to RIT's Procurement Service Office software buyer when initiating the purchase of software to ensure preferred vendors are utilized.
- The decision chart below will assist in the determination whether software costs should be capitalized or expensed. Refer to the glossary below for the key concepts in decision chart. For detailed instructions, see individual guides noted in chart.
- Contact Property Accounting (propertyacctg@rit.edu) for a template to document project costs
Does software solely meet RIT’s internal needs?
Acquired, modified or developed software is solely to meet RIT’s internal needs unless any one of the following occurs:
- During the software's development or modification, a substantive plan exists or is being developed to market the software externally
- Software is to be sold, leased or marketed as a separate product or as part of a product or process
- Software to be used in research and development
- Software developed for others under a contractual arrangement
- Costs incurred for new or upgraded software application for reengineering activities
Is software project a hosting arrangement?
Hosting arrangement is defined as follows:
- In relation to licensing of software products, an arrangement in which an end user of the software does not take possession of the software; rather, the software application resides on the vendor’s or third party’s hardware, and the customer accesses and uses the software on an as-needed basis. Examples of hosting arrangements are software as a service (SaaS) and platform as a service (PaaS).
Can RIT take possession of software without significant penalty?
“Without significant penalty” is defined as:
- The ability to take delivery of the software without incurring significant cost
- The ability to use the software separately without a significant diminution in utility or value