This article explains the accounting treatment for research and development (R&D) costs

under both UK and International Accounting Standards. Both UK and International Accounting
Standards recognise the importance of accounting for R&D, but take a different viewpoint as to
the method used

WHY SPEND MONEY ON R&D?

Many businesses in the commercial world spend vast amounts of money, on an annual basis,

on the research and development of products and services. These entities do this with the
intention of developing a product or service that will, in future periods, provide significant amounts of
income for years to come.

THE ACCOUNTING PREDICAMENT

If, in the future, economic benefit is expected to flow to the entity as a result of incurring
R&D costs, then it can be argued that these costs should be treated as an asset rather than
an expense, as they meet the definition of an asset prescribed by both the Statement of
Principles and the IASB Framework for the Preparation and Presentation of Financial Statements.

Equally, the argument exists that it may be impossible to predict whether or not a project will
give rise to future income. As a result, both the UK and International Accounting
Standards provide accountants with more information in order to clarify the situation.

INTANGIBLE ASSETS

Intangible assets are business assets that have no physical form. Unlike a tangible asset, such
as a computer, you can’t see or touch an intangible asset.

There are two types of intangible assets: those that are purchased and those that are internally
generated. The accounting treatment of purchased intangibles is relatively straightforward in
that the purchase price is capitalised in the same way as for a tangible asset. Accounting for
internally-generated assets, however, requires more thought.

R&D costs fall into the category of internally-generated intangible assets, and are therefore
subject to specific recognition criteria under both the UK and international standards.

R&D – DEFINITIONS

Research is original and planned investigation, undertaken with the prospect of gaining new

scientific or technical knowledge and understanding. An example of research could be a
company in the pharmaceuticals industry undertaking activities or tests aimed at obtaining new
knowledge to develop a new vaccine. The company is researching the unknown, and
therefore, at this early stage, no future economic benefit can be expected to flow to the entity.
 Development is the application of research findings or other knowledge to a plan or design for
the production of new or substantially improved materials, devices, products, processes,
systems, or services, before the start of commercial production or use. An example of
development is a car manufacturer undertaking the design, construction, and testing of a pre-
production model.

UK TREATMENT OF R&D

So far we have established that expenditure on R&D can fall into the category of
intangible assets. Under UK accounting standards, intangible assets are accounted for using
the rules from FRS 10, Goodwill and Intangibles.

Even though R&D can be an intangible asset in the UK, accounting for R&D is governed by its
own accounting standard – SSAP 13, Accounting for Research and  Development.

Recognition 

Research
SSAP 13 states that expenditure on research does not directly lead to future
economic benefits, and capitalising such costs does not comply with the accruals concept.
Therefore, the accounting treatment for all research expenditure is to write it off to the profit
and loss account as incurred.

Development
As a basic rule, expenditure on development costs should be written off to the profit and
loss account as incurred, as with the expenditure on research. However, under SSAP 13, there
is an option to defer the development expenditure and carry it forward as an intangible asset
if the following criteria are met: 

 there is a clearly defined project

 expenditure is separately identifiable
 the project is commercially viable
 the project is technically feasible
 project income is expected to outweigh cost
 resources are available to complete the project.

If these criteria are met, the entity may choose to either capitalise the costs, bringing them ‘on
balance sheet’, or maintain the policy to write the costs off to the profit and loss account. Note
that if an accounting policy of capitalisation is adopted it should be applied consistently to all
development projects that meet that criteria.
 Treatment of capitalised development costs SSAP 13 requires that where development costs
are recognised as an asset, they should be amortised over the periods expected to benefit
from them. Amortisation should begin only once commercial production has started or when
the developed product or service comes into use.

Every capitalised project should be reviewed at the end of every accounting period to ensure
that the recognition criteria are still met. Where the conditions no longer exist or are doubtful,
the capitalised costs should be written off to the profit and loss account immediately.

Problems with SSAP 13 SSAP 13 is not in line with the newer International Accounting
Standard covering this area. As seen previously, the UK allows a choice over capitalisation;
this can lead to inconsistencies between companies and, as some of the criteria are
subjective, this ‘choice’ can be manipulated by companies wishing to capitalise development costs.

INTERNATIONAL TREATMENT OF R&D

One notable difference between the UK and international treatment is that the UK has
a separate standard for the treatment of R&D (SSAP 13), whereas under
International Accounting Standards the accounting for R&D is dealt with under IAS 38, Intangible Assets.

Recognition 
IAS 38 states that an intangible asset is to be recognised if, and only if, the following criteria are
met:

 it is probable that future economic benefits from the asset will flow to the entity
 the cost of the asset can be reliably measured.

The above recognition criteria look straightforward enough, but in reality it can prove to be very
difficult to assess whether or not these have been met. In order to make the recognition of
internally-generated intangibles more clear-cut, IAS 38 separates an R&D project into a
research phase and a development phase.

Research phase
It is impossible to demonstrate whether or not a product or service at the research stage will
generate any probable future economic benefit. As a result, IAS 38 states that all expenditure
incurred at the research stage should be written off to the income statement as an expense
when incurred, and will never be capitalised as an intangible asset.

Development phase
Under IAS 38, an intangible asset arising from development must be capitalised if an entity can
demonstrate all of the following criteria:

 the technical feasibility of completing the intangible asset (so that it will be available for
use or sale)
 intention to complete and use or sell the asset
 ability to use or sell the asset
 existence of a market or, if to be used internally, the usefulness of the asset 
 availability of adequate technical, financial, and other resources to complete the asset
 the cost of the asset can be measured reliably.

If any of the recognition criteria are not met then the expenditure must be charged to the
income statement as incurred. Note that if the recognition criteria have been met, capitalisation
must take place.

Treatment of capitalised development costs

Once development costs have been capitalised, the asset should be amortised in accordance
with the accruals concept over its finite life. Amortisation must only begin when commercial
production has commenced (hence matching the income and expenditure to the period in which it
relates).

Each development project must be reviewed at the end of each accounting period to ensure
that the recognition criteria are still met. If the criteria are no longer met, then the previously
capitalised costs must be written off to the income statement immediately.

EXAMPLE
A company incurs research costs, during one year, amounting to $125,000, and development
costs of $490,000. The accountant informs you that the recognition criteria (as prescribed by
both SSAP 13 and IAS 38) have been met. What effect will the above transactions have on the
financial statements when following either the UK or International Accounting Standards?
(See 'Related links' for the solution.)

Bobbie Retallack is a lecturer at Kaplan Financial in Birmingham, UK

AAS implementation costs – Do you need to write these off at 30 June

2021?
Entities using cloud-based software in a Software as a Service (SaaS) arrangement may incur significant
costs in relation to configuration and customisation of the supplier’s application software to which they
receives access.
SaaS arrangements are usually accounted for as service contracts and not intangible assets (refer IFRIC
agenda decision – March 2019). Despite no intangible asset being recognised on the balance sheet for the
SaaS arrangement, some companies have nevertheless capitalised configuration and customisation costs
relating to these arrangements as ‘intangible assets’. This is all about to change! For 30 June 2021, many
companies may need to remove these capitalised costs from their balance sheets, and retrospective
adjustments will be required to prior year comparative information.

Fact pattern
In April 2021, the IFRS Interpretations Committee (IFRIC) published its final agenda decision on accounting
for configuration and customisation costs in a SaaS arrangement. The agenda decision relates to a fact
pattern where:

 The SaaS arrangement gives the customer the right to receive access to the supplier’s application
software over the contract term (i.e. it is a service contract and not an intangible asset)
 Configuration costs and customisation costs are incurred as described below, and
 The customer receives no other goods and services.

Configuration
Configuration involves the setting of various ‘flags’ or ‘switches’ within the application software, or defining
values or parameters, to set up the software’s existing code to function in a specified way.

Customisation
Customisation involves modifying the software code in the application or writing additional code.
Customisation generally changes, or creates additional, functionalities within the software.
Extracted from IFRIC final agenda decision April 2021
IFRIC considered two questions in relation to this fact pattern:

1. Does the customer recognise an intangible asset in relation to these configuration and customisation
costs?
2. If an intangible asset is not recognised, how does the customer account for these costs?

The diagram below summarises the accounting outcomes for configuration and customisation costs noted in
the final agenda decision. Please read the remainder of the article for a summary of the IFRIC’s
observations.
Question 1: Does the customer recognise an
intangible asset in relation to these configuration
and customisation costs?
It depends. In order to recognise an intangible asset for the configuration and customisation costs, the
customer would need to demonstrate that each type of cost:

 Meets the definition of an ‘intangible asset’, and

 Meets the recognition criteria for an intangible asset in paragraphs 21–23 of IAS 38 Intangible
Assets.

Definition of ‘intangible asset’

IAS 38 defines an intangible asset as ‘an identifiable non-monetary asset without physical substance’ and
notes than an asset is a resource controlled by an entity. An entity controls an asset if it has ‘the power to
obtain the future economic benefits flowing from the underlying resource and to restrict the access
of others to those benefits’ (IAS 38, paragraph 13).
When determining whether configuration or customisation costs meet the definition of an ‘intangible asset’,
this may depend on the nature and output of the configuration or customisation performed. The IFRIC
noted in this regard:

 If the customer does not recognise an intangible asset because it does not control the application
software being configured or customised - those configuration or customisation activities do not
create a resource controlled by the customer that is separate from the software, and
 Some arrangements may result in additional code that the customer may control (i.e. it has the
power to obtain the future economic benefits and to restrict others from having access to those
benefits). In such cases, the customer considers whether other aspects of the definition of an
intangible asset are met, i.e. whether the additional code is identifiable and meets the recognition
criteria in IAS 38.

Question 2: If an intangible asset is not recognised,

how does the customer account for these costs?
Expense when services are received as per the contract
The IFRIC observed that if an intangible asset is not recognised for the configuration or customisation costs,
the customer recognises those costs in the financial statements as an expense when it receives the
configuration or customisation services (IAS 38, paragraph 69). IAS 38, paragraph 69A further notes
that services are received when they are performed by a supplier in accordance with a contract to deliver
them to the entity, and not when the entity uses them to deliver another service.
The customer therefore needs to determine WHEN the supplier performs the configuration or customisation
services in accordance with the contract to deliver those services.

Look to IFRS 15 for guidance on identifying the services received, and when the services are
delivered to the customer
IAS 38 does not provide guidance on how to identify the services received by the customer, nor when those
services have been performed by the supplier in accordance with the contract. IFRIC therefore noted that
applying the hierarchy in IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors
(paragraphs 10-11), we should refer to IFRS 15 Revenue from Contracts with Customers as an IFRS
standard dealing with similar and related issues. IFRS 15 includes requirements for suppliers to identify:

 The promised configuration or customisation services in a contract with a customer, and

  When the supplier performs those services in accordance with the contract.

SOFTWARE SUPPLIER performs configuration and customisation services

If the customer enters into a contract with the supplier of the application software to deliver the
configuration or customisation services (including where the supplier subcontracts services to a third
party), the customer applies paragraphs 69–69A of IAS 38 and determines when the supplier performs
those services in accordance with the contract. In this regard:

 If the services the customer receives are distinct - customer recognises the costs as an expense
when the supplier configures or customises the application software.
 If the services the customer receives are not distinct (i.e. they are not separately identifiable from the
customer’s right to receive access to the supplier’s application software) - customer recognises the
costs as an expense when the supplier provides access to the application software over the contract
term.

THIRD PARTY SUPPLIER performs configuration and customisation services

If the contract to deliver the configuration or customisation services is with a party other than the software
supplier (third party supplier), the customer applies paragraphs 69–69A of IAS 38 and determines when the
third party supplier performs those services in accordance with the contract.
The customer then expenses the configuration or customisation costs when the third party supplier
configures or customises the application software.

Prepayments
If the customer pays for configuration or customisation service in advance of receiving those services, it
recognises the prepayment as an asset.
Disclosure
The final agenda decision also reminds preparers that customers should disclose the accounting policy for
accounting for configuration and customisation costs when relevant to an understanding of the financial
statements (IAS 1 Presentation of Financial Statements, paragraphs 117-124).
IFRIC conclusion
IFRIC decided that neither an Interpretation nor amendments to standards is required because the principles
and requirements in IFRS Standards provide an adequate basis for a customer to determine its accounting
for configuration or customisation costs incurred in relation to the SaaS arrangement described in the
request.

Implications for 30 June 2021 financial statements

Customers with similar SaaS arrangements will need to consider Questions 1 and 2 above in relation to
material configuration and customisation costs incurred. This includes revisiting the accounting treatment of
all configuration and customisation costs incurred in prior years.
Voluntary change in accounting policy
Where the customer needs to change its accounting policy for configuration or customisation costs as a
result of this agenda decision, this can usually be treated as a voluntary change in an accounting policy
under IAS 8, and comparatives will need to be restated accordingly.
Don’t forget the third balance sheet
Where adjustments are required to derecognise intangible assets (or in rare cases to capitalise intangible
assets that were previously written off), entities should remember that a ‘third balance sheet’ as at the
beginning of the comparative period is required where there are material retrospective adjustments that
affect periods before the start of the comparative period.
What is the ‘contract term’ for expensing when SaaS supplier provides configuration/customisation
services that are NOT DISTINCT?
When configuration or customisation services are delivered by the SaaS supplier and are not distinct, they
must be expensed when the supplier provides access to the software over the ‘contract term’. It is not clear
whether the ‘contract term’ is determined:

 Based on the period in which parties to the contract have enforceable rights and obligations (refer
IFRS 15, paragraphs 10-12), or
 By considering the substance of the arrangement and the period over which the customer is likely to
access the software (refer IFRS 15, paragraphs 95(a) and 99).

Note:
IFRS Interpretations Committee (the Committee) agenda decisions are those issues that the Committee
decided not to take onto its agenda. Although not authoritative guidance, in practice they are regarded as
being highly persuasive, and all entities reporting under IFRS should be aware of these decisions because
they could impact the way particular transactions and balances are accounted for.

eLearning
Please click here for access to more eLearning resources.

IAS 38: Intangible Asset or Expense?

by Silvia
 INTANGIBLE ASSETS, PPE (IAS 16 AND RELATED) 129

Recently I had an argument with auditors of one company related to the customer list they bought.

The company paid significant amount of cash for the list of customers of telecommunications.

The list contained the names, addresses and phone numbers of all the clients.

And, the buyer intended to use the list to contact the potential customers and offer them their own
services.

Well, if it’s ethical or not – I leave that up to you, but the auditors of the buyer said that the price paid
for the customer list is an expense in profit or loss.

Is it???

I was not so sure.

To me, the customer list perfectly meets the definition of the intangible asset and in this case after
asking few more questions I was sure that the buyer acquired an asset instead of expense in profit or
loss.

In today’s article we will look at how to distinguish between intangible assets and expenses and you
can find practical illustration in the end.

Including the customer list.

 

What is an intangible asset?

When I am unsure whether certain item is intangible asset or just an expense, I always look to the basic
definition of an asset in IAS 38 and in Conceptual Framework, too:

An asset is a resource controlled by an entity as a result of past events, from which future economic
benefits are expected to flow to the entity. (Framework, par. 4.4 (a))

And, IAS 38 expands this definition for intangible assets by specifying that on top of basic definition, an
intangible asset is an identifiable non-monetary asset without physical substance.

To sum up, each intangible asset has 3 main characteristics:

1. It is controlled by the entity

2. No physical substance
3. It is identifiable.

Just warning: it can happen that an asset has all 3 characteristics, but you cannot recognize it in your
statement of financial position.

The reason is that it still may not meet the recognition criteria.

For example, let’s say you are a telecom company and you have millions of customers.
In this case, you have a customer list that is an intangible asset (please see below for reasoning), but you
can’t show it in your balance sheet, because you cannot measure its cost.

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Just be aware of these situations.
Now, let me explain shortly what each characteristic means.
 

1. Controlled by the entity

If you are able to get the future economic benefits from the use of the asset and at the same time,  you
can prevent others to get these benefits, then you control the asset.

In most cases, you control intangible asset when you have the legal rights to it.

For example, you may have bought the licenses or signed some contract.

Sometimes, control is achieved in a different way.

For example, you may develop some great software internally and you control its sales.

In some cases, you can’t really demonstrate sufficient control of asset and thus you can’t recognize it.

Typical example of such situation is qualified employee – human resources are rarely intangible assets,
because you can’t demonstrate control.
 

2. No physical substance
This one is clear – if some asset has physical substance, then it’s tangible and not intangible.

However, there’s a small exception.

Sometimes, intangible asset is attached to something physical in order to carry it or store it.

In this case, the asset is still intangible because the value of the related physical asset is very
small when compared to the value of intangible asset.
 

3. It is identifiable.
This one is crucial, I think.

The asset is identifiable in one of these 2 cases:

 1. It is separable – so, you can actually separate the asset and sell it, transfer it, license it or do any other
action. Hypothetically.
2. Arises from the legal rights – either from contract, legislation etc. In this case, the asset does not need to
be separable.

For example, imagine you worked hard and you created a famous brand.

Is it identifiable?

Yes, it is, because you can (hypothetically) license it or sell it.

So, you know what the intangibles are.

From now on, always focus on these 3 characteristics to answer whether you deal with an intangible
asset or not.

Can we capitalize the intangible asset?

If it is an intangible asset, then you still have 2 more questions to answer before you capitalize it:
 

1. Can you measure its cost reliably?

This one is straightforward.

If you can’t measure the cost, then you cannot capitalize even when it is an intangible asset.

I described the example above: you cannot capitalize internally generated customer list because you
can’t really determine your cost to develop it.
 
2. Are the future economic benefits of the asset expected to flow to the
entity?
Oh, I love this one.

Future economic benefits can be either increase in revenues or reduction in expenses.

Either way you look at them, the future economic benefits are the potential to increase your profits.

However, many people believe that you must be able to measure them – otherwise they are not the
future economic benefits.

No, not at all.

In fact, it is almost impossible.

Imagine you invest in the nicer office, you buy artwork, nice furniture… can you really measure the
increase of your revenues as a result of these assets?

No, you cannot, but you are quite sure that nicer office has the potential to pull more money out of the
pockets of your clients.

On top of these requirements, there are still some intangible assets that are not intangible assets under
IAS 38, but something else.

Important note: The above applies fully to the intangible assets that are NOT under development.
If you are developing intangible assets, then you have to meet further 6 conditions to capitalize the
expenditures, but let’s touch it in some of my next articles.

Let’s me show you some specific examples.

 

Examples of intangible assets

Licenses to trade
Imagine you own a taxi company.

You operate a taxi service, but you also act as an intermediary for single
private taxi drivers to get their own license.

So, as a part of your business you acquire transferrable taxi licenses from
the government and you sell some of them to the private drivers who buy
from you as it’s easier to get the license this way.

You acquired 1 000 number of taxi licenses.

You employ 400 taxi drivers and you plan to sell another 600 taxi
licenses to private drivers.
In this case, all 1 000 taxi licenses are indeed intangible assets, because they satisfy all requirements.

However, you won’t account for all of them as for intangible assets under IAS 38.

Instead:

1. 400 licenses used by your own employees are intangible assets; and

2. 600 licenses to be sold are your inventories under IAS 2, because you hold them for sale in the ordinary
course of business.

Internet websites
Let’s say that your company operates an e-shop via its
branded website.

The e-shop is famous and attracts a lot of customers.

There’s also a section with a company’s blog with articles
about the newest fashion trends.

This website is an intangible asset, because yes, the

company controls it, it has no physical substance and it is
identifiable (i.e. company can sell it).

However, can you recognize it as an asset?

Yes, it brings the future economic benefits, so this one is

met.

But, can you measure its cost reliably?

If it was developed externally by the third parties, then yes, you can.

If it was developed internally, then well, you have to apply the rules in IAS 38 and especially in SIC 32
Intangible assets – website costs to determine the capitalization.
 

Hockey team
Imagine you purchase a hockey team (lucky you!).

The price you paid was derived from the quality and fame of the specific
hockey players in that team.

Now, is this hockey team – or better said – contracts with players an

intangible asset?

Well, I always say that no, normally you do not capitalize contracts with
employees or any other expenses related to employees, because
you can’t control them.

In this case, the situation can be different.

For example, hockey players might be prohibited to play in another teams by the legal rules placed by
some hockey authority.

Also, the contracts with individual players might legally bind the player to stay with the same team for a
number of years.

In this case, you would be able to demonstrate control and yes, recognize hockey team as your
intangible asset.

Software licenses
You purchased a number of computers for your
employees.

When the computers arrived, you made an online

purchase of corresponding number of licenses for
Windows XY operating system to run the computers.

Also, you purchased a license to use the specific

accounting software.

On top of the purchase cost you are required to pay the

annual fee for upgrades of the software. You can continue
using the license for accounting software also without annual upgrade fees, but you won’t receive any
updates.

Here, we have 3 items:

1. Operating system Windows XY

Yes, it is an intangible asset because it meets all the criteria.

However, operating system is an integral part of the computers, because the computers can’t run
without the system.

Therefore, you would recognize computers together with operating system as property, plant and
equipment, so no separate intangible asset.

For further reference, look to par. 4 of IAS 38.

2. Accounting software license

This is an intangible asset, too.

In this case, you need to recognize the license as an intangible asset, because accounting
software is NOT essential to run the computer.

3. Annual upgrades
 Annual upgrades do not meet the definition of an intangible asset, because they are not
separable.

They are expensed in profit or loss when incurred.

You can see them as something similar to maintenance and repair costs of property, plant and
equipment.
 

Customer lists
Imagine you bought a customer list from telecom company with
names of their clients, addresses and phone numbers.

Is this an intangible asset?

In most cases yes, because:

 It has no physical substance,

 It is identifiable (yes, it is because you were able to buy it),
 You control it,
 You can measure its cost reliably (you paid for it) and,
 You expect the future economic benefits (increased sales as a
result of new list of potential customers).

I spoke more about it in this IFRS Q&A podcast episode.

Warning: in some countries and at some circumstances such a customer list is not an intangible asset.

The reason is that some countries have legislation in place that prevents you from random contacting the
potential customers on the list.

In this case you would not be able to get the future economic benefits from the list because you cannot
use it (so why would you buy it anyway?). Thus you do not control the asset fully.

However, telecoms often ask their customers to agree with passing their data to third parties for
advertising purposes, so in this case you would be able to use the list (hint – read the small letters in the
contracts to know what you agree to!).

You have to assess all of these things to conclude whether the customer list is an asset or not.
 

Advertising campaign
The last but not least.

Some companies invest heavy cash into their advertising

campaigns.

Literally millions.

Imagine you plan to invest 1 mil. EUR into the

advertising campaign over the next year.
 Your advertising agency told you that this campaign would build and strengthen your brand and position
in many years to come.

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So, some people believe that yes, they should capitalize advertising campaign as it brings the future economic
benefits.
No dispute on this.

The only thing is that the advertising campaign is NOT identifiable – you can’t separate it and sell it to
someone else.

Therefore, you should recognize the expenditures for advertising campaign in profit or loss.

Of course, when you prepay the campaign for let’s say 2 years, then you should recognize the expenses
over 2 years as the services are consumed.

Summary of SIC-32
SIC-32 concludes that a website developed by an entity using internal expenditure, whether for
internal or external access, is an internally generated intangible asset that is subject to the
requirements of IAS 38 Intangible Assets.
SIC-32 identifies the following stages of website development:
 Planning
 
 Application and infrastructure development
 
 Graphical design development
 
 Content development
 
 Operating
SIC-32 addresses the appropriate accounting treatment for internal expenditure on each of
those stages of development and operation:
1. A website arising from development should be recognised as an intangible asset if, and
only if, in addition to complying with the general requirements described in IAS 38.21 for
recognition and initial measurement, an enterprise can satisfy the requirements in IAS 38.57.
In particular, an enterprise may be able to satisfy the requirement to demonstrate how its
website will generate probable future economic benefits under IAS 38.57(d) when, for
example, the website is capable of generating revenues, including direct revenues from
enabling orders to be placed. An enterprise is not able to demonstrate how a website
developed solely or primarily for promoting and advertising its own products and services will
 generate probable future economic benefits, and consequently all expenditure on developing
such a website should be recognised as an expense when incurred.
 
2. Any internal expenditure on the development and operation of an enterprise's own
website should be accounted for in accordance with IAS 38. The nature of each activity for
which expenditure is incurred (eg training employees and maintaining the website) and the
website's stage of development or post-development should be evaluated to determine the
appropriate accounting treatment. For example:
o Planning. The planning stage is similar in nature to the research phase in IAS
38.54-.56. Expenditure incurred in this stage should be recognised as an expense when it is
incurred.
 
o Application and infrastructure development, graphical design and content
development stages. To the extent that content is developed for purposes other than to
advertise and promote an enterprise's own products and services, are similar in nature to the
development phase in IAS 38.57-.64. Expenditure incurred in these stages should be included
in the cost of a website recognised as an intangible asset in accordance with this Interpretation
when the expenditure can be directly attributed, or allocated on a reasonable and consistent
basis, to preparing the website for its intended use. For example, expenditure on purchasing or
creating content (other than content that advertises and promotes an enterprise's own products
and services) specifically for a website, or expenditure to enable use of the content (such as a
fee for acquiring a licence to reproduce) on the website, should be included in the cost of
development when this condition is met. However, in accordance with IAS 38.71, expenditure
on an intangible item that was initially recognised as an expense in previous financial
statements should not be recognised as part of the cost of an intangible asset at a later date
(for instance, when the costs of a copyright have been fully amortised, and the content is
subsequently provided on a website).
 
o Content development. Expenditure incurred in the content development stage,
to the extent that content is developed to advertise and promote an enterprise's own products
and services (such as digital photographs of products), should be recognised as an expense
when incurred in accordance with IAS 38.69(c). For example, when accounting for expenditure
on professional services for taking digital photographs of an enterprise's own products and for
enhancing their display, expenditure should be recognised as an expense as the professional
services are received during the process, not when the digital photographs are displayed on
the website.
 
o Operating. The operating stage begins once development of a website is
complete. Expenditure incurred in this stage should be recognised as an expense when it is
incurred unless it meets the criteria in IAS 38.18.
3. A website that is recognised as an intangible asset under SIC-32 should be measured
after initial recognition by applying the requirements of IAS 38.72-.87. The best estimate of a
website's useful life should be short.