On Sept. 18, 2025, the Financial Accounting Standards Board (FASB) issued an update to ASC 350-40, modernizing the accounting treatment for internal-use software. With the increasing reliance on agile development and cloud-based services, the new guidance seeks to align accounting practices with today’s technological realities. 

Key Changes at a Glance 

• Elimination of Traditional Development Stages - Gone are the days of categorizing costs into preliminary, application development and post-implementation stages. The new model removes these defined phases in favor of a more flexible, principle-based approach.

• New Capitalization Threshold: Probable-to-Complete - Under the proposal, credit unions can begin capitalizing internal-use software costs once two conditions are met: 

  • Management has authorized and funded the project. 
  • It is probable the software will be completed and perform as intended. 

  If there is significant uncertainty, such as undefined requirements or unproven technology — capitalization must be deferred until those uncertainties are resolved. 

• Alignment with External-Use Software Standards - The guidance brings internal-use software accounting more in line with external-use software standards under ASC 985-20. This change reflects the increasing overlap in software development methodologies. 
• Integration of Website Development Guidance - The proposal consolidates ASC 350-50 (website costs) into ASC 350-40, simplifying the accounting treatment for digital platforms. 

What is Still Being Expensed 

Certain costs related to internal-use software must still be expensed as incurred. These include training costs, ongoing software maintenance, data conversion or migration activities, and planning or research efforts incurred before meeting the capitalization threshold. Additionally, any costs incurred when significant development uncertainty exists, such as undefined requirements or unproven technology, should be recognized as expenses rather than capitalized. 

Why This Affects Credit Unions 

Credit unions are increasingly adopting fintech solutions to enhance member services, optimize backend operations and ensure regulatory compliance. These updates directly affect how internal-use technology investments are accounted for—particularly when implementing core banking systems, cybersecurity tools or member-facing platforms. The shift to an outcomes-based capitalization model means credit unions must carefully assess the probability of project success and ensure clear documentation of approval and funding. 

What Credit Unions Might Consider Doing to Prepare 

With the ASC 350-40 update now finalized, credit unions should take proactive steps to assess its impact. This includes reviewing current internal-use software projects and capitalization policies to identify gaps with the proposed ‘probable-to-complete’ model. Credit unions could also evaluate their internal documentation and project approval workflows to ensure they can demonstrate funding authorization and development feasibility, if needed. Preparing in advance can smooth the transition and help credit unions stay ahead of compliance timelines should the standard be adopted. 

Effective Date and Transition 

The updated guidance will take effect for fiscal years beginning after Dec. 15, 2027, with early adoption permitted. Credit unions may choose from a fully retrospective approach, prospective application or prospective with a cumulative-effect adjustment. 

Moving Forward 

FASB’s finalized changes to ASC 350-40 mark a shift toward outcome-based accounting for internal-use software. With the new standard now in place, CFOs, controllers and accounting teams should take immediate steps to evaluate their software development processes and prepare for implementation. Doeren Mayhew’s credit union pros are here to help. Rely on us to help navigate these changes and proactively prepare your credit union for implementation.