What ASU 2025-06 Means for Startups

Startups feel ASU 2025-06 through one mechanism above all: they build novel, unproven software, and the new standard says you can’t capitalize while significant development uncertainty remains.

More early expensing

For an early-stage product with genuinely novel technology, the probable-to-complete threshold may not be met until the approach is proven through coding and testing — which can be deep into development. Until then, the spend is expensed. That’s arguably more honest (early, R&D-like work isn’t really an asset yet), but it changes how your burn and operating results read.

Diligence and exit readiness

A clean, defensible capitalization policy matters when investors or acquirers run diligence. Vague or inconsistent capitalization is a red flag; a documented policy built on the new threshold — with evidence of when each project crossed it — is the opposite. Build it early. Reconstructing it later is expensive and looks worse.

The tax angle

Software development also interacts with R&D tax credits and IRC §174 capitalization — separate from book accounting, with their own rules. Don’t assume book and tax treatments line up; align the two analyses, especially at a startup where the cash impact of tax is real.

Should you early-adopt?

ASU 2025-06 is effective FY2028 but available now. A startup might early-adopt for cleaner comparability ahead of a raise or exit, or wait. Weigh it with your auditors — and either way, start capturing the evidence (funding, scope, risk-resolution) from day one. Done as you go, it costs nothing; see applying ASU 2025-06.