Agile Accounting Standard Program
Director: Pat Reed
Start Date: January 2012
The explosive and strategic growth of technology in the 90’s, combined with the absence of standard accounting methodologies prompted FASB and AICPA to publish accounting guidelines (SOP 98-1, ASC 350-40) that require all organizations to better define and standardize internal IT development costs. These mandatory accounting guidelines require all organizations to better define, standardize and report internal IT development costs in order to standardize financial reporting, eliminate the inconsistencies across companies and ensure investors made informed decisions ; and designed around a phased, waterfall based Software Development Lifecycle and IT investment model where IT projects are delivered in discrete, time boxed phases. As organizations adopt an iterative Agile development and delivery model, they encounter inherent constraints and points of friction with legacy accounting practices and policies which could adversely impact Enterprise Agile adoption and scalability. Before Agile can scale as the primary mode of developing software, this accounting issue needs more clarification and an Agile software and project accounting practice needs to be developed.
FASB accounting standard SOP 98-1: Accounting for the Costs of Computer Software Developed or Obtained for Internal Use (ACC Section 10,720) provides legal guidance on the appropriate way to account for corporate investment in software. In a waterfall method of software development with phased gates where all of the feasibility, analysis and design activities and task are completed before development begins and individual team members track their time to specific work breakdown tasks associated with discrete project phases (i.e. a preliminary phase of feasibility analysis and high level design; a development phase of development, testing, implementation, integration and deployment ; and a deployment phase of stabilization and maintenance); this accounting standard provides clear guidance. However, as Agile gains prominence, the phased gate language results in significant confusion and challenges of interpreting how to map the iterative work that happens throughout an Agile project lifecycle and is becoming an increasing urgent issue.
Risks associated to the absence of an Agile Accounting Standard that provides clear guidance to ensure that organizations understand Agile project cost accounting and consistently and appropriately account for corporate investment in software include:
- Loss of material benefits of utilizing the an Agile methodology (increasing the cost and risk of software development)
- Blocking large scale and enterprise adoption of Agile
- Creating inconsistencies in interpretation of project cost accounting and defeating FASB’s original intent of generating an accounting standard to resolve diversity in practice by providing specific guidelines to ensure comparability. The existing guidance was written specific to the staged gate waterfall practices and can be reasonably interpreted and reasonably applied in multiple ways, leading to non-comparability (i.e. the same project labor cost accounted for differently across organizations) increasing inconsistencies as well as increasing the risk of over-expensing software development costs that should be capitalized.
- Increasing the risk of false audit findings, inappropriate financial reporting and restatement of earnings.
- Limiting organizations and industry from fully adopting and leveraging the benefits of an Agile Software Development Methodology
Engage with FASB’s Emerging Issues Task Force to promote and develop an Agile Accounting Standard that will better define and standardize internal IT development costs for organizations that use an iterative or agile software development methodology.
- Document a compelling business case
- Assemble a task force (pro bono)
- Present the business case to FASB as a compelling emerging issue
- Support FASB in developing an Agile Accounting Standard – or an Accounting Standard that is methodology-independent
- Oversee related communication and educational outreach to the Agile community
How Will the Program Advance the Mission of the Agile Alliance?
This program supports all of the Agile Alliance Value Dials:
- Advancing Agility
- Revenue and Expense Management
- Promoting a strong and vital Agile Community
- Increasing Strong Brand Awareness
- Advancing Agile Education
- Advancing Goodwill
- Providing Important and Value-added Information to the extended Agile Community
What Are the Commercial Aspects of the Program?
Significant, considering the multiple billions of $ of IT investments and lost opportunity for improved expense management and costs associated with project failures
For additional information, or to obtain a copy of the working draft currently under review,
please contact email@example.com