The following table identifies the changes made to this Subtopic.
This Subtopic provides guidance on costs associated with business process reengineering and information technology transformation projects. The following describes such projects.
To take advantage of new advances in electronic commerce and in computer technologies, many entities are entering into consulting contracts that combine business process reengineering and information technology transformation. Consulting services may encompass software development, software acquisition, software implementation, training, and ongoing support. Business process reengineering may be a component of some of those activities.
Information technology transformation projects that involve software packages (sometimes called enterprise software) recently have been undertaken by entities that must reengineer their business processes to connect into that software rather than modify that software to connect into their existing business processes. The transformation project may include the installation of new computer hardware, the purchase of office equipment, furniture, or work stations, and the physical reconfiguration of the work area.
The guidance in this Subtopic applies to all entities.
The cost of business process reengineering activities, whether done internally or by third parties, is to be expensed as incurred. This expense treatment also applies when the business process reengineering activities are part of a project to acquire, develop, or implement internal-use software.
Internal and third-party personnel involved with current state assessment, process reengineering, and restructuring the work force usually have backgrounds in business function, business control, internal audit, internal control, and so forth. Although some may have information technology and software application expertise, the focus of this effort is on process rather than software systems.
Costs typically associated with the acquisition or the construction of property and equipment phase of a business process reengineering project shall be accounted for in accordance with the entity's existing policies for productive assets.
When a third party is used for a business process reengineering project, the total consulting contract price (or the sum of the linked contracts with the same vendor) shall be allocated to each activity based on the relative fair values of those separate activities. The allocation shall be based on the objective evidence of the fair value of the elements in the contract, not necessarily the separate prices stated within the contract for each element.
The following table sets forth the accounting for typical components of a business process reengineering/information technology transformation project based on whether the item should be: - a
Expensed as incurred in accordance with the guidance contained in this Subtopic
- b
Expensed as incurred in accordance with internal-use software guidance contained in Subtopic 350-40 - c
Capitalized in accordance with internal-use software guidance contained in Subtopic 350-40 - d
Capitalized as part of the cost of acquiring a fixed asset in accordance with a company's existing policy.
(Note that letters in the grid refer to the corresponding guidance listed above.) ![](\"/asc-img/GUID-C13FBC10-DAC6-403B-B430-8C749D60705A-low.gif\")
Third Party Internal Steps Expense Capitalize Expense Capitalize Business process reengineering and information technology transformation: Preparation of request for proposal a a Current state assessment a a Process reengineering a a Restructuring work force a a Preliminary software project stage activities: Conceptual formulation of alternatives b b Evaluation of alternatives b b Determination of existence of needed technology b b Final selection of alternatives b b Application development stage activities: \"Design of chosen path, including software configuration and software interface\" c c Coding c c Installation to hardware c c \"Testing, including parallel processing phase\" c c Data conversion costs: a. Costs to develop or obtain software that allows for access of old data by new system c c b. All other data conversion processes b b Training b b Post-implementation/operation stage activities: Training b b Application maintenance b b Ongoing support b b Acquisition of fixed assets: \"Purchase of new computer equipment, office furniture, or work stations\" d N/A N/A Reconfiguration of work area—architect fees and hard construction costs d d\t
(P) December 16, 2027; (N) December 16, 2027
350-40-65-4The following table sets forth the accounting for typical components of a business process reengineering/information technology transformation project based on whether the item should be: - a
Expensed as incurred in accordance with the guidance contained in this Subtopic
- b
- c
- d
Capitalized as part of the cost of acquiring a fixed asset in accordance with a company's existing policy
- e
Capitalized or expensed in accordance with the internal-use software guidance contained in Subtopic 350-40.
(Note that letters in the grid refer to the corresponding guidance listed above.) ![](\"/asc-img/GUID-960B46E9-0EF8-4D2A-8260-05C8D4907350-low.gif\")
Third Party Internal Steps Expense Capitalize Expense Capitalize Business process reengineering and information technology transformation: Preparation of request for proposal a a Current state assessment a a Process reengineering a a Restructuring work force a a \"Acquire, develop, or implement internal-use software\" e e e e Acquisition of fixed assets: \"Purchase of new computer equipment, office furniture, or work stations\" d N/A N/A Reconfiguration of work area—architect fees and hard construction costs d d