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APPENDIX C 55 APPENDIX C Excerpts from Amendments to FASAB Standard Number 6 Statement of Federal Financial Accounting Standards Number 10, June 1998 Accounting for Internal Use Software Executive Summary This statement provides recommended accounting standards for internal use software. Under the provisions of this statement, internal use software is classified as âgeneral property, plant, and equipmentâ (PP&E) as defined in Statement of Federal Financial Accounting Standards (SFFAS) No. 6, Accounting for Property, Plant, and Equipment. This statement includes software used to operate a federal entity's programs (e.g., financial and administrative software, including that used for project management) and software used to produce the entity's goods and services (e.g., air traffic control and loan servicing). Internal use software can be purchased off-the-shelf from commercial vendors and can be developed by contractors with little technical supervision by the federal entity or developed internally by the federal entity. SFFAS No. 6 specified treatment for internally developed software different from that for commercial off-the- shelf (COTS) software and contractor-developed software. SFFAS No. 6 addressed COTS and contractor- developed software generally, providing that they were âsubject to its provisions.â On the other hand, specific provision was made for internally developed software. SFFAS No. 6 prohibited the capitalization of the cost of internally developed software unless management intended to recover the cost through user charges, and the software was to be used as general PP&E. For capitalizable software, capitalization would begin after the entity completed all planning, designing, coding, and testing activities that are necessary to establish that the software can meet the design specifications. At the conclusion of the PP&E project the Federal Accounting Standards Advisory Board discussed whether the standard for internally developed software should also apply to contractor-developed software. Also, some users of SFFAS No. 6 were unsure how to apply it to COTS and contractor-developed software. The Board decided, in December 1996, to review the issue and develop a separate standard for internal use software. This standard requires the capitalization of the cost of internal use software whether it is