Accounting for software in the United States
This thesis represents the first major research to be completed either in the United Kingdom or the United States on the subject of accounting for software. Part I concentrates on the financial aspects of software accounting, and consisted of in-person interviews with a number of individuals from software' vendor and user companies who are knowledgeable about software accounting. The interviews were followed by two mail questionnaires, one each to software vending company executives and software user company executives. The NAARS database was also used to determine how software accounting policies are disclosed for these two types of company. It was concluded that more than one policy exists in practice. While approximately 90% of the companies surveyed expense internally constructed software, about two-thirds capitalize the cost of purchased software. Reasons given for individual company policy seem to be based on expediency rather than good accounting theory. The interviews and questionnaire responses in Part I seemed to indicate that software vendor companies that capitaliize software find it easier to raise debt and equity capital than do companies which expense software costs. Part II presents the results of two questionnaires that were mailed to bank lending officers and one questionnaire that was mailed to financial analysts for the purpose of obtaining more information on this point. It was concluded that companies that capitalize software costs find it significantly easier to obtain bank loans than do companies that expense software costs. The effect on stock price was less clear cut, although the questionnaire responses did indicate that a company's software accounting policy does influence the value a financial analyst places on a company's stock. Part III discusses the United States federal and state tax aspects of software. Thirteen appendices giving supplementary data are also included.