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In April 2021, the IASB ratified a March 2021 IFRS IC agenda decision on  Configuration and Customisation ('CC') costs in a Cloud Computing Arrangement. This agenda decision might result in a change in accounting policy for entities that incur, or have previously incurred, material CC costs associated with a Software as a Service (SaaS) cloud arrangement. The key areas entities should consider are as follows:
  • Can the costs be capitalised as an intangible asset?
-  A customer often would not recognise CC costs as an intangible asset because the customer does not control the software being configured or customised and those activities do not create an asset that is separate from the software. In some circumstances however, additional code that is created might be identifiable and might meet the recognition criteria in IAS 38. An entity should consider whether their circumstances would result in them recognising such additional code as an intangible asset.
  • Can the CC costs be capitalised as a prepayment, or should the costs be expensed when incurred?
-  IAS 38 requires an entity to expense the cost of a service when it is received. A service is received when it is performed by the supplier in accordance with a contract and not when the entity uses the service. An entity should understand who is performing that service (a third party or the SaaS provider) and whether the service is distinct from the SaaS performance obligation following the criteria in IFRS 15 to conclude when the service is performed. If a third party supplier performs the CC those costs would typically be expensed immediately unless the third
The decision tree below summarises the steps with respect to CC services:
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This agenda decision might require an entity to re-evaluate the accounting for configuration and customisation costs incurred in previous reporting periods, in particular if they were capitalised. Agenda decisions often provide explanatory material which can result in voluntary accounting policy changes in accordance with IAS 8 as they arise from 'new information'. Voluntary changes in accounting policies are applied retrospectively unless impracticable.
While the agenda decision does not change IFRS Standards and so has no formal effective date, the IASB expects that an entity would be entitled to sufficient time to assess if any changes are needed and to implement any change. In most cases, it is expected that a 31 December 2021 reporter would have had sufficient time to analyse the IFRIC decision given the length of time since its publication.
#However, there may be limited circumstances where it is not practical for a 31 December 2021 reporter to implement the IFRIC decision. In these circumstances, we would expect that the 31 December financial report would explain the reason for the delay of implementation and disclose any relevant information that management has been able to determine at the reporting date.
See IFRS MoA FAQ 3.20.1 and 3.37.1 for more information on the nature and status of agenda decisions and how to account for changes resulting from agenda decisions. More guidance on how to assess Configuration and Customisation ('CC') costs and other related issues in a Cloud Computing Arrangement can be found in In depth INT2021-09.
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