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ASC 720-45, Other ExpensesBusiness and Technology Reengineering, prescribes that reporting entities expense as incurred the costs of business process reengineering activities, whether incurred internally or by third parties. This guidance also applies when the business process reengineering activities are part of a project that includes plans to acquire, develop, or implement internal-use software or other assets. However, this guidance does not change the accounting for internal-use software development costs or the acquisition of long-lived assets.

ASC 720-45-25-2

The following third-party or internally generated costs typically associated with business process reengineering shall be expensed as incurred:

  1. Preparation of request for proposal—the process of preparing a proposal.
  2. Current state assessment—the process of documenting the entity's current business process, except as it relates to current software structure. This activity is sometimes called mapping, developing an as-is baseline, flow charting, and determining current business process structure.
  3. Process reengineering—the effort to reengineer the entity's business process to increase efficiency and effectiveness. This activity is sometimes called analysis, determining best-in-class, profit and performance improvement development, and developing should-be processes.
  4. Restructuring the workforce—the effort to determine what employee makeup is necessary to operate the reengineered business processes.

Costs associated with the acquisition or the construction of property and equipment related to a business process reengineering project should be accounted for in accordance with the reporting entity's existing policies for accounting for productive assets. Refer to PPE 1 for information on the capitalization of costs associated with long-lived assets. Similarly, costs related to the development or acquisition of internal-use software in connection with a business process reengineering project should be accounted for using the framework for internal-use software costs (see SW 3).
Refer to ASC 720-45 for additional examples of costs incurred for business process reengineering and information technology transformation projects and the related accounting conclusions.
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