We are currently in the development stage as defined by FASB 350-40, and the software is for internal use. Beyond SOP 98-1 and FASB 350-40, I would like more specific guidance on which resources should be capitalized or which functions' time should be capitalized. I understand that coders and project leads are typically capitalized, as is code testing. The confusion mainly stems from the Scrum Master—who spends 100% of their time managing a stable team responsible for software development.

Some suggest that the Scrum Master's role is administrative in nature and should not be capitalized; however, other articles and most agile practice sites argue that the Scrum Master should be capitalized. Is there more detailed documentation that explains which functions should be capitalized and when in an agile environment? Additionally, if there are auditor rulings, they would also help clarify the issue. Note that this question applies only to U.S. GAAP scenarios.

Core Disagreement in Capitalization Judgment

FASB 350-40 requires that direct and indirect costs of internal-use software during the development stage can be capitalized, but general administrative costs, training costs, and maintenance costs cannot be capitalized. The question is whether the Scrum Master's daily management activities qualify as a necessary function "directly serving software development" or are closer to general administration.

Proponents of capitalization argue that the Scrum Master removes obstacles, coordinates sprints, and ensures team delivery, with their work directly supporting the development process, similar to an extension of project management. Opponents emphasize that the Scrum Master does not directly write code or test, and their core focus is team process and people management, closer to administrative oversight, and therefore should be expensed.

Reference Factors in Practice

  • Detailed Time Tracking: If the Scrum Master also participates in development tasks (e.g., writing user stories, participating in design reviews), actual hours must be split, capitalizing only the portion directly related to development.
  • Substance Over Form: Auditors typically focus on whether the role has a direct impact on software functionality, not just the job title.
  • Industry Practice and Audit Positions: Some large accounting firms have issued non-public guidance tending to treat purely process management roles (such as Scrum Master) as indirect costs, but if they participate in technical decisions, partial capitalization may be allowed.

Seeking More Authoritative Guidance

Currently, FASB has not issued specific interpretations for agile development. Supplementary materials to reference include: AICPA's audit guidance on internal-use software (if updated), industry position papers from accounting firms, and FASB Staff Q&A. It is recommended to communicate early with the external audit team and prepare detailed time records and responsibility descriptions to support the capitalization judgment.

"Whether to capitalize ultimately depends on whether the role directly participates in the creation or improvement of software development, not its management title." — Technology Accounting Partner at a Big Four firm (anonymous citation)

In summary, there is no uniform answer to the capitalization of the Scrum Master; it requires consideration of specific responsibilities, time allocation, and audit judgment. It is recommended that companies establish a clear time classification system and retain supporting documentation to address potential reviews.