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IAS 38 — Customer's right to access the supplier's software hosted on the cloud

Date recorded:

Customer's right to access the supplier's software hosted on the cloud (Agenda Paper 7)


In September 2018 and November 2018, the Committee discussed a submission about how the customer applies IFRS Standards in accounting for fees paid to the supplier to access the supplier’s application software running on the supplier’s cloud infrastructure (i.e. Software as a Service (SaaS) arrangements). In such arrangements, the capability provided by the supplier (the cloud service provider) to the customer is to access the supplier’s application software running on the supplier’s cloud infrastructure. During the November 2018 meeting, the Committee agreed with the agenda decision which (i) set out the analysis of the application of IFRS 16 to the SaaS arrangements and concluded that a contract that conveys to the customer only the right to receive access to the supplier's application software in the future is a service contract; (ii) analysed the application of IFRS 16 or IAS 38 if the contract contains a software lease and concluded that a software lease is a licensing agreement within the scope of IAS 38 but not IFRS 16, and therefore the right of use as an intangible asset has to be recognised at the contract commencement date.

13 comment letters were received and 10 respondents agree with the tentative agenda decision not to add the matter to its standard-setting agenda while 1 disagrees. Several respondents also highlight the need for improving the dated Standard IAS 38 in view of the evolution and emergence of new technologies.

Staff analysis

One respondent said that a right of access does not necessarily prevent the customer from having decision-making rights about how and for what purpose the software is used because the right would depend on specific terms and conditions of the contract. The staff analyse that the existence of decision-making rights is beyond a right to access the application software and therefore different from the fact pattern in the submission.

Since, based on the specific fact pattern of the submission, the accounting analysis of the SaaS arrangement is a service contract rather than a lease, the staff suggest removing the context about the analysis of IAS 38 vs. IFRS 16 and the related recognition and measurement issues as set out in the agenda decision.

To address a comment about whether the contract contains a lease of a tangible asset, the staff understand there is a broad variety of SaaS arrangements. They agree to add in the agenda decision the fact that the contract does not contain a lease of tangible assets. This avoids the implication that a cloud computing arrangement would never contain a lease.

Staff recommendation

The staff recommend that the Committee finalise the agenda decision (subject to abovementioned changes and deletions). The staff also recommend reporting the feedback from respondents on the need for improvement of IAS 38 to the Board.


Most of the Committee members agreed with the staff analysis. Some of them disagreed with removing the context about the analysis of IAS 38 vs. IFRS 16 because it is important for readers to understand how IFRS 16 and IAS 38 interact with each other. They acknowledged though that providing the context no longer answers the question after the conclusion in respect of service vs. asset has been reached.

There was a lively discussion among Committee members about the targeted improvements to IAS 38. As part of the discussion, the context of "variable payments to cloud suppliers" (which has been removed now) should be considered. In addition, the interaction between IAS 38 and IFRS 16 should be considered as part of the improvements to IAS 38.

The Committee decided, by a majority of votes, to publish the Agenda Decision with editorial changes.

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