Why agile professionals should be concerned about capitalization

In many companies, misunderstandings and error reporting on Agile software Development lead to increased tax burdens, erratic profit and loss reporting, and manual tracking of programmer hours. I can assert that the production cost data created by the scrum team is more verifiable and better documented than most of the waterfall model implementations, and more closely related to known customer values. Better reporting would mean substantial tax savings and spark greater investor interest. Agile companies should refine the practice of financial statements to highlight the advantages of scrum. It may not be easy, but I did.

The Scrum production experimental Framework (production experiment framework) is fully consistent with the principles of financial statements.

During the scrum transition for the entire software company with 900 people, I adjusted the capitalization of the software based on these principles, and we let the auditors rejoice, learn more about the top management, and improve the internal funding to hire developers. By using the Scrum Product backlog entry for more accurate documentation and capitalization of our software work, we are saving millions of of our tax-burden spending.

I would like to convey to you these perspectives and resources to create accounting arguments for agile capitalization, thereby potentially reducing the tax burden on your company, increasing the availability of funds for engineers, and cheering your auditors.

Software is capital investment

Software development is an investment for the long-term future. We pay for the engineer's salary in advance, and then (hopefully) make a profit in the near future by saving money or earning money. If we invest wisely-converting cash (one type of asset) into software (another type of asset)-the value of the company will be enhanced. Tax agencies and investors rely on financial statements to understand the value of a company. How do we report development costs?

First, let's be clear about capitalization (capitalization) and cost (expensing). "Capitalization" means that investment costs (sometimes referred to as capital investment or capital costs) need to be rewarded in terms of the life cycle of a long term asset (a long-term asset). Capitalization is often used in tax returns and financial statements (such as profit and loss reports). Capital investment has become a part of the company's public assets. "Cost" means that the cost is immediately "affected", as "operating costs" in the short term to obtain returns or no value. A company that costs all software development will find it difficult to clarify that its software is part of long-term value.

Some software development projects are not long-term investments, depending on whether the software is still an asset. For example, a software outsourcing service provider develops and sells custom software that does not retain ownership of the software, a project that will not be capitalized. (But the company that buys the software can capitalize on it)

It's easy to make a fatal mistake when classifying software costs. Some companies mistakenly treat all software investments as operating expenses, hiding their true value. While this error can provide an opportunity for some improper behavior, classifying software investments as operating expenses usually results in more tax burdens on the company and an undervalued corporate value, which drives down the company's share price and weakens the company's ability to lend.

Agile experts should understand the capitalization of

If the financial staff is not handling the scrum product development properly, the policies they formulate will be a hidden concern and weaken the company's support for scrum. Agility makes some financial experts confused. Because of their frequent release rhythms, they will assume that agile software is some kind of "temporary" presence.

The agile expert should learn to capitalize and impart to his colleagues a modest capitalization. Misconceptions about how to track and report on the cost of agile projects can make many companies spend millions of of dollars in improper taxes. Imperfect capitalization rules will bring agile companies a volatile income statement that makes them seem mismanaged. The so-called "conservative" waterfall process makes it difficult to track the correspondence between design work, management tasks, and functional characteristics, but agile methods can. However, accountants generally do not understand how to properly track and report on the labor situation in agile projects.

When companies capitalize on software development, they usually save taxes, hire more developers, and create value faster. If their capitalization is justified, they will be able to report more responsibly to investors and supervisors about the company's financial position. For reasonable capitalization, we must accurately collect the labor cost in the process of asset creation, and classify these costs reasonably into "capitalized" or "cost".

The Product backlog entry describes the value that is delivered to stakeholders and can be easily categorized. But the waterfall model--its endless design cycles and confusing stages (looking at a phase diagram of a RUP, you'll see a cluttered scene everywhere)--it's hard to keep track of which design work or project management tasks are causing the features. Some people feel that financial and tax agencies will like agile practices.

But most financial experts and professional accountants have no deep understanding of agile practices. For example, using the waterfall model in accounting standards to explain the capitalization principle, and misuse of the waterfall model of the language will cause people to the software development error classification. Unless the team's agile heirlooms can help the financial department to capitalize on Agile software Development, the company will be burdened with excessive burden of tax liabilities, disguised layoffs for engineering personnel, and the risk of audit anomalies and subsequent revisions of reports.

Misconceptions about the principles of agile capitalization will lead to significant layoffs. Recently, Pat Reed (another Agile business advisor) and I discussed capitalization with a manager in a large engineering company. The manager tells us that his financial department can capitalize on waterfall model development, but sees agile development as an "operating expense" because finance (wrongly) thinks that all sprints are actually "prep project phase" work. I asked, "Is this going to limit your staffing?" "Yes, any department that chooses to use agile practices is expected to halve staffing," he admits.

On the positive side, understanding capitalized ScrumMaster and agile development leads can fix this problem. Because good agile practices can make capitalization more verifiable, the cost of investing in an entire period of time can often reduce the overall tax burden and help to hire more engineers with early funding. Here are the reasons why ScrumMaster has this ability:

ScrumMaster is the person who can best distinguish between a long-term investment or a short-term fee in a company, and usually has key data that ensures that the work is properly categorized by both the financial and external Auditor.

ScrumMaster pushes the process to adjust the team's behavior to make it more reliable and consistent with established goals. Scrum technology has an adaptive statistical basis and is supported by experimentation, which is not available in traditional project management techniques. In my experience, an auditor can trust a report based on agility more than the "actual number" based on the waterfall model.

As a scrummaster, if you want to seize this opportunity, the labor classification will probably become the responsibility of you and other scrummaster of the company. Inevitably, you will be an expert on the subject of software capitalization, asset depreciation, and asset impairment. Welcome to the world of finance!