Software is considered acquired, modified or developed solely to meet Stanford's internal needs unless one of the following scenarios occurs:

  • During the software's development or modification, a substantive plan exists or is being developed to market the software externally
  • Software to be sold, leased or otherwise 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
  • Accounting for costs of re-engineering activities, which are often associated with new or upgraded software applications

Hosting arrangement is defined as follows:

  • In connection with the 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 a third party's hardware, and the customer accesses and uses the software on an as-needed basis over the internet or via a dedicated line. Some hosting arrangement examples are software as a service (SaaS), platform as a service (PaaS) and infrastructure as a service (IaaS).

"Without significant penalty" contains two distinct concepts:

  1. The ability to take delivery of the software without incurring significant cost
  2. The ability to use the software separately without a significant diminution in utility or value

Upgrades and enhancements are defined as modifications to existing internal-use software that result in additional functionality – that is, modifications to enable the software to perform tasks that it was previously incapable of performing. Upgrades and enhancements normally require new software specifications and may also require a change to all or part of the existing software specifications.


  1. Begin capitalization when:
    • Preliminary project stage is completed.
    • Funding has been approved.
    • It is probable that the project will be completed and software functionality conforms to intent.
  2. End capitalization when:
    • Project substantially completed and ready for internal use (usually the go-live date).

Multiple Elements 

The purchase price of the software may include multiple elements, such as training for the software, maintenance fees for routine maintenance work to be performed by the third party, data conversion costs, re-engineering costs and rights to future upgrades and enhancements. In such a case, the department who enters into this arrangement shall allocate the cost among all individual elements. The allocation shall be based on objective evidence of fair value of the elements in the contract, not necessarily separate prices stated within the contract for each element.

General and administrative costs include the following:

  • Space/rent
  • Utilities
  • Telephone
  • Overhead costs
  • Supplies
  • Equipment

The capitalized software may have a potential impairment in value that warrants it being written down/off if any of the following occur:

  • The acquired or developed software is not expected to provide substantive service potential.
  • A significant change occurs in the extent or manner in which the software was intended to be used.
  • A significant change is made or will be made to the software program.
  • The costs of developing or modifying the software significantly exceeded the original expected amount.


Software Costs, Capital Accounting
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