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Strategies & Market Trends : Bill Wexler's Profits of DOOM
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To: Bill Wexler who wrote (856)5/18/1998 3:22:00 AM
From: hasbeen101  Read Replies (1) of 4634
 
** OFF TOPIC **

Bill, I have question that's off topic but relevant to analysing the financial statements of software companies. Perhaps you or some other person who understands US accounting standards could help me out.

Her in Australia, the government has just changed the tax law so that software development costs must be capitalised then amortised over two and a half years. You can only start the amortisation after the project has finished.

I am wondering what the requirements are in the US.

We all know that it is a good practice for NASDAQ companies to expense their software development costs in the current period, and that generally only the scam companies take the option of capitalising software development outgoings (which makes their reported earnings look higher). What does the US tax law require? Can companies expense software development costs for tax purposes?

Here in Australia, companies will be showing the outgoings as an expense on the financial statement, but not in their tax filings. Therefore the effective tax rate in the period in which the software project takes place will be artificially inflated (Similarly it will appear artificially low when the amortisation takes place as a book entry, even though no cash is going out the door).
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