Decision on accounting for SaaS purchases

The IFRS IC has published an agenda decision on how a customer accounts for its right to access software hosted on the cloud (Software as a Service or SaaS). The request submitted to the IFRS IC specified that the software runs on cloud infrastructure managed and controlled by the supplier, the customer accesses the software as needed (over the internet or via a dedicated line), and the contract does not convey to the customer any right to the infrastructure (i.e. the tangible assets).

Keywords: Mazars, Thailand, IFRS, IFRS 16, IFRS IC, SaaS, IAS 38

24 May 2019

The IFRS IC was asked whether the customer received an intangible asset (the software) at the contract commencement date or a service over the contract term.

Having noted that a customer receives a software asset at the contract commencement date only if either (a) the contract contains a software lease, or (b) the customer otherwise obtains control of the software at the contract commencement date, the IFRS IC considered whether either of these conditions is met.

Does the contract contain a software lease?

The Committee’s analysis began with the definition of a lease set out in IFRS 16, which states that a contract is a lease if it conveys to the customer the right to use an asset, i.e. if the customer has the right to obtain substantially all the economic benefits from use of the asset (an identified asset) and the right to direct the use of that asset. The IFRS IC noted that a right to receive future access to the supplier’s software, running on the supplier’s infrastructure, does not in itself convey the right to direct the use of the software (how and for what purpose to use the software). The Committee observed that the supplier would retain this right, e.g. by deciding how and when to update or reconfigure the software, or deciding on which hardware the software will run.

Consequently, the Committee concluded that the contract does not contain a software lease if it only conveys to the customer the right to receive access to the supplier’s software over the contract term.

Does the customer receive a software intangible asset?

Starting with the definition of an intangible asset set out in IAS 38, the Committee observed that a contract that conveys to the customer the right to receive access to the supplier’s software over the contract term is not a contract that conveys to the customer the right to receive an intangible asset at the contract commencement date.

The right to receive future access to the supplier’s software does not give the customer, at the contract commencement date, the power to obtain the future economic benefits flowing from the software itself and to restrict others’ access to those benefits.

Consequently, the Committee concluded that a contract that only conveys to the customer the right to receive future access to the supplier’s software is a service contract.

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