4203 PR.01 Accounting for Information Technology Services ("ITS") Capital Projects

Contents

1.      Overview

2.      Procedure

3.      Decision Tree for Determining How to Account for ITS Internal Use Software Projects

4.      Internal Use Software Capitalization Rates for ITS Personnel, by Role

Pursuant to Yale Policy 4203 Accounting for Internal Use Software Development Projects and ASC 350-40 Internal Use Software, costs are either expensed as incurred or capitalized depending on the nature of such costs and the stage of project development during which the costs are incurred. At Yale, Eligible Costs are capitalized on Software Development Projects when the total Eligible Costs of a project (excluding Hardware Costs) are $500,000 or greater.   Costs incurred on projects to develop software for internal use in which total Eligible Costs are less than $500,000 must be expensed as incurred. 

A.  Capitalization Threshold

The University’s capitalization threshold for Internal Use Software is $500,000, excluding the cost of hardware.  This procedure sets forth the steps that must be followed to ensure the proper accounting for all Information Technology Services (“ITS”) projects; those that meet the $500,000 capitalization threshold and those that do not. 

The University’s capitalization threshold for computer hardware coincides with the threshold for equipment as stated in Policy 4209 Moveable Equipment.  This procedure also covers the processes to follow to ensure the proper accounting for computer Hardware Costs; those that meet the moveable equipment threshold and those that do not.

B.  Accounting for Internal Use Software Projects

Internal Use Software Projects that do not meet the capitalization threshold of $500,000

For an approved ITS project with total Eligible Costs (excluding hardware) less than $500,000, a new Operating Project must be requested from Chart of Accounts. To request a new project, departments must submit a completed New Project Request Form to coa@yale.edu.  If approved, all costs related to the project are charged to the new project and expensed as incurred.

Internal Use Software Projects with Eligible Costs of $500,000 or greater (ITS Capital Projects)

For an approved ITS project where total Eligible Costs (excluding hardware) are expected to exceed $500,000, ITS must submit request to Capital Asset Accounting. Capital Asset Accounting reviews the request and forwards to coa@yale.edu for setup of new Capital Project.

All project costs incurred on an ITS project for which a Capital Project has been set up are charged to the Capital Project.  Ineligible costs (e.g. costs incurred during the Planning Phase or Post-Implementation Phase) are expensed by the Capital Asset Accounting team as part of the Workday Business Process covering Business Assets.

Once an ITS Capital Project has been completed, ITS must notify Capital Asset Accounting so that the project can be closed and the asset placed in service.  At this point, the Capital Project transitions its accounting presentation from Construction in Process (“CIP”) to Other Assets and amortization of the asset commences. Regular amortization on Other Assets is charged in the External Reporting Book (GAAP View) only.

 Interest and Amortization (“I&A”) charges are assessed using the mid-year convention in the year the asset is placed In Service on debt funded projects. I&A represents the interest and amortization of the principal balance paid over the life of the asset. I&A is charged in the Management Book (Internal View) only.

C.  Accounting for Computer Hardware Costs

Many Internal Use Software projects have a computer hardware (equipment) component.  When computer hardware (equipment) is purchased in connection with an approved ITS project, the costs should be charged according to the following procedures.

Operating Projects

When charged to an Operating Project, Hardware Costs in excess of Yale’s capitalization threshold for Moveable Equipment ($5,000) are automatically capitalized, so long as they are charged to the proper Spend Category in Workday.  The cost of the equipment appears as a charge (i.e. an expense) on ITS’ operating statements.  Such costs are accounted for as Moveable Equipment, are registered and issued an MEI tag, and included in the “Equipment” ledger account within the University’s financial statements.

Capital Projects

There may be cases when ITS undertakes a Project that does not meet the threshold for capitalization of internally developed software ($500,000, exclusive of Hardware Costs), but has a significant hardware component (i.e. greater than $100,000).  In these instances, if the Project is funded by debt (rather than by the ITS Operating Budget), a Capital Project should be established to which ALL Project costs should be charged.  The Capital Asset Accounting team reviews the costs charged to the Capital Project.  Hardware Costs, and any other Eligible Costs (e.g. installation costs), are capitalized as “Other Assets,” and all other project costs are expensed.

As set forth in Policy 4203 Accounting for Internal Use Software Development Projects  only costs incurred during the application development stage are eligible for capitalization.  Labor costs for those ITS employees (or contractors) working directly on the development and implementation of the software, to the extent of the time actually spent working directly on the project, may be capitalized. However, these costs must be allocated to the project as indirect charges. Direct payroll charges to capital projects are not permitted.

Listed below is the capitalization rate for ITS personnel (or contractors) by role:

No labor costs for any functional staff working on a project to develop Internal Use Software may be capitalized nor may any labor costs for any personnel (ITS or functional) working in an administrative role.

Listed below are activities that are not capitalizable:

• Administrative
• Overhead
• Training
• Communication
• Change Management
• Web Editor
• Executive Sponsors
• Program Leadership