**2026-06-20**

# What ASU 2025-06 Means for CFOs and Controllers

For finance leaders, [ASU 2025-06](/software-capitalization/asu-2025-06) is less about the accounting mechanics than about what moves on the financial statements. The new [probable-to-complete threshold](/software-capitalization/glossary/probable-to-complete) tends to push more software cost into expense earlier — and that ripples outward.

## Earnings and EBITDA

Capitalized software is recorded, then amortized, and amortization is typically excluded from EBITDA. So when more cost is expensed up front instead of capitalized, near-term operating income and EBITDA fall. For routine software the effect is modest — FASB expects little change for most software — but for novel SaaS and AI builds it can be material.

## Covenants and financing

Review your debt-covenant definitions, especially where a change in accounting principle isn't contemplated. If modeled changes in capitalized software would move a covenant ratio toward its cushion, brief lenders and the audit committee early. The same applies to KPI and bonus arrangements tied to financial metrics, and to IPO or exit readiness.

## Disclosures change

Capitalized internal-use software now carries ASC 360-10 (property, plant & equipment) disclosures — roll-forwards, additions, amortization, major in-process projects — regardless of whether it sits on the balance sheet as PP&E or as an intangible, and regardless of whether it was internally developed or licensed. The general-intangibles disclosures (ASC 350-30) no longer apply. Reconfigure the footnotes accordingly.

## Cash-flow geography

Total cash is unaffected, but the geography shifts: capitalized software is an investing outflow, while expensed development is operating. More expensing can change operating-cash-flow and free-cash-flow optics even though nothing about the cash itself changed.

## Get ahead of it

Model the impact now — inventory in-process and planned projects, estimate the directional change to capitalized balances and EBITDA, and choose a transition method. [Applying ASU 2025-06](/software-capitalization/applying-asu-2025-06) covers the operational side. The threshold is effective FY2028, with early adoption available now.

## Frequently asked questions

### Does ASU 2025-06 lower EBITDA?

It can — more early expensing reduces near-term operating income and EBITDA, mainly for novel SaaS and AI development. For routine software the effect is modest.

### What disclosures change?

Capitalized internal-use software moves to ASC 360-10 (PP&E) disclosures, including roll-forwards and major in-process amounts; the ASC 350-30 intangibles disclosures no longer apply.

### Could it affect our debt covenants?

Possibly — review covenant definitions, especially where accounting-principle changes aren't contemplated, and brief lenders early if cushions are tight.

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