Q3 2026: What controllers need to know for quarter end

As companies invest heavily in AI, accounting leaders are asking a practical question: Can some of those costs be capitalized? The answer, like a lot of things in accounting, is: it depends. If AI costs are being spent to develop software, they may be capitalizable.

AI may be changing the way software is developed, but it doesn’t create a new accounting model. We still start with the existing software cost guidance and determine whether the software is for internal use or if it will be sold, leased, or marketed. We’ll focus on internal-use software:

• What costs can be capitalized and when: First, the project has to reach the point when capitalization can begin. From there, it really comes down to how the AI is being used, when the costs are incurred, and whether those costs can be tied directly to the qualifying software being developed.
• What will likely be expensed: Broad, enterprise-wide AI subscriptions used across general business functions should typically be expensed as incurred.
• What may qualify for capitalization: Incremental costs for AI coding agents, API usage, tokens, or dedicated AI development services may be capitalized if they are project-specific, measurable, and incurred after the capitalization threshold is met.

While AI may be doing more every day, it doesn’t rewrite the accounting rules, but it does raise the bar on documentation. You should document if and why AI costs qualify for capitalization. Strong contracts, invoices, usage logs, project codes, and engineering records will be key support.  

Demand for critical AI hardware, including processor chips and other semiconductors, networking equipment, and other electronic components, remains high and has contributed to supply constraints. To help secure access to this inventory while managing working capital, some companies are turning to third parties to purchase and hold the inventory until it is needed.

That can be an effective way to secure supply, but it also raises an important accounting question: Is this really just a normal purchase commitment with a third-party supplier, or is the third party effectively financing the purchase?

The answer depends on the substance of the arrangement, not just who holds legal title to the inventory. The key is understanding whether the third party is truly acting as an independent owner that controls the inventory and bears meaningful market risk, or is effectively acting as a financing intermediary.

A few questions can help frame the analysis:

• Control: Can the third party realistically sell the inventory elsewhere? Who makes the key decisions on sourcing, storage, and logistics?
• Economics: Who bears the risk of price changes, loss, or obsolescence? Are there repurchase commitments, debt guarantees, or residual value guarantees that protect the third party from those risks?

The bottom line: If the company effectively controls the inventory and retains substantially all the risks and rewards of ownership, the arrangement may be a product financing arrangement rather than an ordinary purchase commitment. In that case, ASC 470-40 requires the company to recognize the inventory and a corresponding financing obligation when the third party purchases the inventory on its behalf, even if the third party holds legal title.  

As tariffs continue to be the administration’s favorite tool for managing US trade relations, the tariff landscape continues to evolve. Here’s the latest:

• What is going on with the IEEPA refund process: The refund program for the IEEPA tariffs continues to progress, with over $100 billion in refunds paid or in queue for payment through August. Phase 2 opened on June 29, for tariff entries with additional complexities. Phase 3, for older entries that have been finally liquidated, has not yet been launched. And those older entries are also subject to the government’s pending appeal. Each company should continue to apply its chosen accounting policy for recognition of tariff refunds in relation to the available evidence for each category of tariff.
• And in other tariff news: The temporary Section 122 surcharge expired on July 24, but on the same day new Section 301 duties related to forced-labor import prohibitions took effect. Other country- and product-specific tariffs are also in play—and the ongoing Section 301 investigation into excess industrial capacity continues. With so many tariff balls in the air, it reinforces the importance of evaluating and tracking each tariff program separately. At the same time, recent White House and DOJ actions signal increased customs enforcement is coming. Companies should maintain robust documentation and controls over entry-level data as well as cross-functional coordination across customs, legal, tax, treasury, supply chain, finance, and accounting.

The comment periods for the SEC’s proposed rules on semiannual reporting and filer status modernization ended in July. Here’s an overview of the feedback:

• Semiannual reporting: Response volume on semiannual reporting is likely record breaking with more than 200,000 responses received, driven principally by the investor community and often consisting of only brief remarks. Although the proposed rule would not require a change to semiannual reporting, many investor groups, academics, and individual investors commented on the value of standardized quarterly information and argued that giving a public company the option to reduce reporting frequency could reduce transparency and comparability. Issuers and preparers largely support the SEC’s goal of providing greater reporting flexibility and reducing the burden on issuers, but they recommend targeted changes, coordination with the FASB/PCAOB, and continued attention to disclosure quality.
• Filer status modernization: Comment letter volume was much lower here, with less than 200 responses. Feedback generally supports simplifying the filer status framework, though views are notably mixed on other aspects of the proposal. The main debate centers on finding the right balance: industry commenters generally support expanded accommodations, while audit, investor, and governance groups question whether the proposal goes too far—particularly by significantly expanding exemptions from SOX 404(b) auditor attestation and scaled disclosure requirements. Overall, respondents support the SEC’s modernization efforts while recommending the agency strive to balance increasing accommodations for issuers and maintaining beneficial investor protections.