In the audit plan for the audit of Keystone Computers & Networks, Inc., on page 241 there is a section on significant accounting and auditing matters. The second matter described involves capitalizing the costs of developing a software program for sale.
a. Research this issue and write a brief memorandum for the working papers describing the issue and summarizing the appropriate method of accounting for the development costs.
b. Based on your research, describe the major audit issue that you believe will be involved in auditing the software development costs.