What costs does Engel & Volkers mainly include when developing computer software for internal use?
Engel_Volkers Franchise · 2025 FDDAnswer from 2025 FDD Document
The Company accounts for costs incurred in connection with internally developed software in accordance with Financial Accounting Standards Board ("FASB") Accounting Standards Codification ("ASC") 350, Intangibles - Goodwill and Other - Internal-Use Software. In accordance with FASB ASC 350, capitalization of internal-use software development costs begins at the point when the preliminary project stage is completed and it is probable that the project will be completed and the software will be used to perform the intended function. These costs mainly consist of external direct costs of materials and services consumed in developing or obtaining internal-use computer software, salaries and benefits of the employees who are directly associated with, and who devote time to, the internal-use computer software project (to the extent their time is directly spent on the project) incurred when developing computer software for internal use. Once the project is complete, costs to maintain the software are expensed as incurred. The cost of any enhancements to the software that extend its useful life are capitalized.
Internally developed software is amortized on a straight-line basis over its estimated useful economic life, which is three years.
Source: Item 21 — FINANCIAL STATEMENTS (FDD page 88)
What This Means (2025 FDD)
According to Engel & Volkers' 2025 Franchise Disclosure Document, the company capitalizes certain costs associated with internally developed software. These costs primarily include external direct costs for materials and services used in the software's development or acquisition. Additionally, the costs include salaries and benefits for employees directly involved in the internal-use computer software project, specifically for the time they dedicate directly to the project. Engel & Volkers follows Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) 350 guidelines for these practices.
For a prospective Engel & Volkers franchisee, this accounting practice is relevant because it impacts the company's financial statements, which franchisees may review as part of their due diligence. Understanding how Engel & Volkers accounts for software development costs can provide insight into their investment in technology and how these investments are valued on their balance sheet. Capitalizing these costs and amortizing them over three years suggests a strategic approach to managing and recognizing the value of their internally developed software.
It's important to note that once the software project is complete, Engel & Volkers expenses the costs associated with maintaining the software as they are incurred. However, any enhancements that extend the software's useful life are capitalized, indicating a distinction between ongoing maintenance and significant upgrades. The company amortizes internally developed software on a straight-line basis over an estimated useful economic life of three years.