AITB No. 21 Accounting for AI-Enhanced Predictive Maintenance Systems
Issue: How should entities account for costs and benefits associated with the deployment of AI-enhanced predictive maintenance systems for equipment and machinery?
Background: Predictive maintenance, powered by AI, forecasts when equipment will fail so that maintenance can be performed just in time to avoid unplanned downtime. This results in increased equipment lifespan, reduced maintenance costs, and optimized operations.
Guidance:
- Capitalization of Predictive Maintenance System Costs: Expenses related to the development or acquisition of AI-enhanced predictive maintenance systems intended for long-term operational optimization should be capitalized as an intangible asset.
- Expensing of Data Collection and Routine Calibrations: Costs associated with collecting equipment performance data or routine system calibrations to improve prediction accuracy should be expensed as incurred.
- Amortization of Capitalized System Costs: The capitalized costs should be amortized over the system's expected useful life, considering technological advancements and the lifespan of the equipment being monitored.
- Benefit Recognition: Financial benefits derived from extended equipment life, reduced unplanned downtime, and optimized maintenance scheduling should be recognized in the income statement in the respective period.
Examples:
- Company U invests $2.3M in an AI-enhanced predictive maintenance system predicted to offer benefits over a 6-year period. They would capitalize the $2.3M and amortize it over the 6-year timeframe.
Note: This is a fictional representation and does not represent any real-world standard for AI. The development of such standards would involve extensive consultations with experts, stakeholders, and the public. Fictional representations simplify complex AI concepts, stimulate discussion, envision future scenarios, highlight ethical considerations, encourage creativity, bridge knowledge gaps, and set benchmarks for debate in fields like accounting.