ASU 2025-06 explained: new internal-use software rules and the evidence they require

What ASU 2025-06 changes, in plain terms

ASU 2025-06 rewrites the starting line for capitalizing internal-use software costs under ASC 350-40. The FASB removed every reference to the three project stages (preliminary project, application development and post-implementation) and replaced them with one recognition threshold: capitalize once management has authorized and committed to funding the project and it is probable the project will be completed and the software used to perform the function intended.

The concrete effect on a CFO's month-end is the evidence. Under the stage model, a controller could often point to a milestone such as design sign-off. Under the new threshold, you need to show that significant development uncertainty has been resolved, and that proof lives in tickets, roadmaps and sprint records rather than in the general ledger. For fractional CFOs, that review is also a natural moment to see which clients keep deep engineering histories, the theme of the referral program for fractional CFOs.

How does the probable-to-complete threshold work?

Work through it project by project, in this order:

1. Authorization and funding. Management with the relevant authority has approved the project and committed to fund it. Budget approvals, board minutes and signed statements of work are the usual evidence.
2. Significant development uncertainty. The update points to two indicators: the software has novel, unique or unproven functions or features whose uncertainty has not been resolved through coding and testing, or the significant performance requirements have not been identified or are still being substantially revised.
3. The threshold decision. While significant development uncertainty exists, completion is not considered probable and costs are expensed. Capitalization starts once the uncertainty is resolved and the other conditions hold.
4. The end point. Capitalization stops when the software is substantially complete and ready for its intended use, which works much as it did before.

What evidence will CFOs need to show?

Expect auditors to ask how you concluded that uncertainty was resolved, and when. Build a file per project from these sources:

Many of the same sources support the tax analysis, so coordinate with whoever prepares the client's Section 174A position and the research credit study described in what qualifies for the R&D credit in software development. Book and tax conclusions can differ, but they should rest on one consistent set of facts.

When does ASU 2025-06 take effect for private companies?

There is no private company deferral. The update is effective for all entities for annual reporting periods beginning after December 15, 2027, including interim periods within those years, and early adoption is permitted as of the beginning of an annual reporting period. Companies can apply it prospectively, use a modified approach for projects in progress at adoption, or apply it retrospectively. Confirm the transition details in the ASU text before choosing.

For a calendar-year private client, a workable plan looks like this:

Why the evidence review shows which clients hold deep engineering records

The review sorts clients quickly. Call it the sprint-to-ledger test: pick a capitalized cost and try to trace it back to an approval, a ticket, a code change and a test result. Where that trail runs cleanly for several years, the client keeps the connected engineering history that AI labs and data buyers license to train and evaluate software agents.

Watch for these signals while you build the files:

• Ticket histories that span years, with consistent workflow states and linked code changes
• Pull requests carrying real review discussion, not just approvals
• Design documents and decision records that capture alternatives and outcomes
• Incident reports and postmortems tied to the fixes that followed
• Several connected systems: issue tracker, source control, CI, wiki and support desk

Internal-use software is not limited to software companies. A logistics business with its own dispatch tools or a services firm with an in-house delivery platform can hold the same depth, which is why the logistics records playbook for fractional CFOs and the B2B SaaS playbook both start with engineering systems.

Demand for these records has a structural cause. Researchers at Epoch AI project that, if current trends continue, language models could fully use the stock of public human-generated text between 2026 and 2032. It is a forecast with wide uncertainty, but it explains why permissioned records of real work inside companies draw interest.

What it means if you introduce clients to SourceX

You make the introduction; you never handle the records. With the owner's agreement you share basic fit information, the company completes its own data inventory with SourceX, and redaction and de-identification rules are settled with the company before any work starts. Nothing you saw while building evidence files is passed on.

If a client does license data, the revenue side follows ASC 606, not ASC 350-40. Deloitte's roadmap chapter on the nature of a license explains the distinction between a right to use intellectual property as it exists when granted, recognized at a point in time, and a right to access it over the license period, recognized over time. The FASB clarified that licensing guidance in ASU 2016-10, as the Journal of Accountancy reported. How a specific data license is recognized depends on its terms, so the client should agree the treatment with its auditors before signing.

Partners earn 25% of the eligible platform fees SourceX actually collects from the referred company's licensing deals, capped at $100,000 per referred company. The reward becomes payable only after the buyer pays and SourceX receives its fee; an introduction, meeting or signed agreement alone does not trigger payment, and no reward is guaranteed. It is paid out of SourceX's share, so the client's proceeds are untouched. If you hold a CPA license, check your state board's rules on referral fees and disclosure first.

Limits and open questions

• The threshold is judgment-heavy. Audit firms will form views on what counts as resolved uncertainty, and first-year adoptions will test them.
• Strong engineering records are not enough on their own: the company also needs 50+ full-time employees at peak (contractors excluded), a documented operating history of several years, clear rights to the material and someone authorized to sign.
• Customer data processed inside a product usually belongs to customers, and contractor-written code may need an assignment before it can be licensed.
• A license is a one-time payment for an agreed dataset; do not forecast repeat deals in a client's budget.

This is general information, not legal, tax or financial advice. Confirm accounting conclusions with the client's auditors.

Next step

When an evidence review turns up years of connected engineering records, run the client through the company fit checker, a preliminary and non-binding screen that needs no contact details, and compare the result with who qualifies. If the owner wants to explore, register as a partner and send your referral link.