Part 3: Preparing for the New Software Capitalization Standard: What Finance Leaders Should Do Now
Author: Nathan Schouest, Assurance & Advisory Partner
at Frank, Rimerman
December 2025 – Software development has evolved, and the accounting rules are catching up. ASU 2025-06 introduces a new, more flexible approach for determining when internal-use software costs can be capitalized.
This short series breaks down what’s changing, how to evaluate projects under the new model, and what finance and product teams should do now to prepare. Our goal is to make the guidance clear, practical, and easy to apply to your business.
With ASU 2025-06 on the horizon, businesses can position themselves for a smooth transition by taking action now.
1. Assess Your Current Projects
Start by listing active and upcoming software development initiatives. Determine which projects may qualify for capitalization under the new rules and where new documentation will be required.
2. Decide Whether Early Adoption for ASU 2025-06 Makes Sense
Early adoption may be beneficial if:
- You’re preparing for your first audit.
- You’re not currently capitalizing software, so transition friction is low.
- You want rules that better align with agile or iterative development processes.
On the other hand, you may prefer to wait if:
- Your project tracking or documentation processes need strengthening.
- You have well-established capitalization methods you don’t want to disrupt immediately.
3. Update Policies and Controls
Finance teams should refresh:
- Capitalization policies
- Project approval protocols
- Engineering-Finance collaboration procedures
- Documentation and audit-support processes
- What evidence is required
- Who signs off
- When documentation must be completed
- How changes in scope will be tracked
SOX-compliant companies, in particular, should revisit IT and financial reporting controls.
4. Clarify “Uncertainty Resolved” With Engineering
Because determining uncertainty is judgment-based, it’s critical for Engineering, Product, and Finance to align on:
5. Ensure Stakeholders Are Trained
Product managers, engineering leads, finance teams, and PMO staff should all understand the new triggers for capitalization and the evidence required.
With deep roots in Silicon Valley and a strong track record supporting innovative, engineering-led businesses, our team at Frank, Rimerman + Co. helps companies confidently navigate new accounting requirements. If you’d like assistance planning your adoption approach or strengthening controls ahead of ASU 2025-06, we’re here to help. Contact us today.
This Article is Part of A Series
Part 1: New Rules for Capitalizing Software Costs: What ASU 2025-06 Means for Your Business
Part 2: How to Evaluate and Document Software Capitalization Under the New Model
About the Author Nathan Schouest, Partner
Assurance and Advisory / LinkedIn / E-mail
As a partner in the firm’s Assurance & Advisory practice and leader of the firm’s Artificial Intelligence (AI) practice, Nathan Schouest advising high-growth and venture-backed companies, from early-stage startups to global enterprises. He specializes in industries at the forefront of innovation—including artificial intelligence (AI), life sciences, biotechnology, SaaS, and high-tech—and brings deep expertise in guiding clients through each stage of their growth journey.
Disclaimer: The material appearing in this communication is for informational purposes only and should not be construed as legal, accounting, tax, or investment advice or opinion provided by Frank, Rimerman + Co. LLP or its subsidiaries or affiliates. This information is not intended to create, and receipt does not constitute, a legal relationship, including, but not limited to, an accountant-client relationship. Although these materials have been prepared by professionals, the user should not substitute these materials for professional services and should seek advice from an independent advisor before acting on any information presented. Frank, Rimerman + Co. LLP and its subsidiaries or affiliates assume no obligation to provide notification of changes in tax laws or other factors that could affect the information provided.