Fasb Statement 86

FASB STATEMENT 86

FASB Statement 86

Accounting 304

Carla LaMariana

11/28/2007

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In 1973 a new organization was founded, this organization was named The Financial Ac-counting Standards Board, or the FASB. The FASB creates and improves the standards of the reporting of financial accounting and to guide and educate the general public. When the FASB issues these standards they are considered to be the latest generally ac-cepted accounting principles, otherwise known as GAAP (2007). In 1985 the FASB is-sued accounting statement number 86. Statement number 86 is entitled, Accounting for the Costs of Computer Software to Be Sold, Leased, or Otherwise Marketed. The effective date for statement number 86 is the fiscal years that begin after December 15, 1985. Statement number 86 affects FAS 2, paragraph 31, and FIN 6, paragraphs 3, 6 and 8, su-persedes FIN 6, paragraphs 7 and 9 and supersedes FTB 79-2. Statement number 86 is at this time affected by no other pronouncements (Professional Library).

Statement 86 covers the handling of computer software that is to be sold, leased, or oth-erwise marketed as a separate or as a part of a product or process,(FASB: Summary of Statement 86) the FASB began the process of developing a standard for the accounting of software due to a moratorium imposed by the SEC and in response to an AICPA Issues Paper entitled, Accounting for Costs of Software For Sale or Lease.(Professional Library) Statement 86 helps clarify the requirements for the costs that should be considered research and development and those costs that should be considered production costs. It is also stated that all costs that are considered research and development should be expensed at the time they occur and all production costs should be capitalized.

Research and development costs are defined as costs incurred internally in the process of creating a product that has technological feasibility. Technological feasibility is estab-lished when a detailed program design or a working model of the program are completed. All other actions after feasibility has been completed are considered production costs. Be-fore statement 86 was created companies expensed all costs incurred during production and development of computer software. (Professional Library)

FASB statement 86 was not passed without dissention among the seven members. The statement had two members who voted against it. The reasoning behind the two members of the FASB having dissenting opinions is that they believe statement 86 restricts the ca-pitalization of the software costs, it tends to allow