USA Capitalizing/Accruing Labor Costs for Co-Sourcing Agency

[kcovault]

Hello,

Recently I was posed a question from our management team regarding whether it is feasible to capitalize or accrue labor expenses for a co-sourcing agency and then expense the labor costs after an individual has been sourced to a customer. Is this advisable under US GAAP?

Background: our area of the business operates much like an outsourcing/co-sourcing agency - we hire individuals at our company and then source them out to our customers; we then charge a contracted fixed monthly rate for their services. The difference in labor expenses and the reimbursement for their services representing our margins/profitability.

If the company were to hire a "bench" (i.e. a pool of individuals hired and incurring labor expenses but with no immediate/short-term customer sourcing available), is it permissible under US GAAP to move those expenses off the income statement and potentially capitalize or accrue those labor expenses to be amortized or expensed once the individual is sourced to a customer? Assuming you amortize or expense the labor expenses over the life of the individuals' co-sourcing contract period.

 

[kirby]

Capitalize this?
Well, no.
Apparently, you are in for a fun time with a mgmt crew that has such brilliant thoughts.
The expense follows the benefit. Your “benefit” is having your bench available to you, whether or not they are assigned to an engagement.
There is no “future capitalizable benefit” here from paying them now.