Businesses that enter into cloud computing arrangements have to consider the acceptable accounting treatment for the prices incurred.
Cloud computing has become increasingly popular in recent years as companies have explored efficient and secure ways to store, manage and process their data.
This type of arrangement is predicated on remote server networks, usually accessed over the web, with service models encompassing infrastructure, platforms, and software. The customer accesses and uses the software on an as-needed basis.
Transitioning to the cloud or implementing a replacement cloud computing arrangement can involve high costs for companies, and there are implications on how to account for these costs.
Accounting standards don’t, however, provide explicit guidance on this. Businesses must use judgment and apply various IFRS standards, including IFRS 16 Leases and IAS 38 Intangible Assets.
Businesses stepping into these cloud computing arrangements must understand whether this is a purchase of an intangible, a right of use, or a contract to receive services. The financial reporting implications are significantly different betting on the solution. When the IFRS Interpretations Committee was asked, they guided to make the excellence.