What ASU 2025-06 Means for Auditors

ASU 2025-06 replaces a bright-line stage test with a principles-based threshold — and that shifts work onto auditors. Instead of checking which stage a cost fell in, you’re now evaluating management’s judgment about whether a project was funded, probable to complete, and free of significant development uncertainty.

The judgment challenge

The profession has already flagged this. Moving from rigid stages to a probability-based approach is a positive step, but auditors face a real challenge evaluating management’s judgment calls — interpreting and auditing the probability threshold, as commentators have noted, will require significant effort.

What you’ll be testing

The capitalization start date now rests on three judgments, each with evidence to test:

• Funding committed — management or board authorization, approved budgets, signed contracts, with dates.
• Requirements stabilized — that the significant performance requirements were identified and not substantially revised afterward.
• Significant development uncertainty resolved — that novel or unproven technology was actually resolved through coding and testing, not merely asserted.

The strongest evidence is contemporaneous and lives in the company’s delivery tooling — funding decisions, scope-stabilization points, spike resolutions — captured as they happened, not reconstructed at year-end.

Watch the soft spots

• The “software project” unit of account is undefined, a likely source of diversity in practice and inconsistent application.
• AI development and training-data costs are genuinely unsettled, with the major firms diverging — scrutinize the policy and its consistency. (See AI development costs.)
• Transition — the modified method’s derecognition of in-process costs is easy to miss.

Where the evidence comes from

Clients that capture the funding, scope, and risk-resolution signals in their issue tracker give you an auditable trail by construction. Quantify ties capitalization to dated, traceable work items — as useful to the auditor as to the preparer.