IAS 38 — Cloud computing arrangements

Date recorded:


The Committee received a submission asking about the customer’s accounting in cloud computing arrangements (e.g. Software as a Service (SaaS) arrangements). The submitter asks 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. 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. The cloud infrastructure is a collection of hardware and software including network, servers, operating systems, storage, and individual software capabilities. The customer generally does not take possession of the software. Instead, it accesses the software on an as-needed basis over the internet or via a dedicated line. The customer does not manage or control the underlying cloud infrastructure with the possible exception of customer-specific software configuration settings. Contracts are often for an initial non-cancellable period (for example, two years), with options within the contracts for the customer to extend them.

In the absence of specific requirement in IFRS Standards, the submitter asks about the accounting treatment and the staff has analysed the appropriate treatment by considering (a) whether the rights to access software are within the scope of IAS 38 or IFRS 16 Leases from the customer’s perspective; (b) whether or not SaaS arrangements create an intangible asset for the customer; and (c) if the customer has an intangible asset, how should the customer measure that intangible asset and any liability related to its acquisition.

Staff analysis

With regard to (a) above, the submitter asks for clarity as to the distinction between ‘rights held by a lessee under licensing agreements’ and ‘leases of intangible assets’ referred to in IFRS 16:3(e) and 4 respectively. The submitter also says some think the scope exclusion in IFRS 16:3(e) applies only to the licensing agreements specified in that paragraph, and not to licensing agreements for software. The staff consider the explanation of a 'license' in IFRS 15 Revenue from Contracts with Customers (IFRS 15:B52) and conclude all leases of software would result in rights being held by a lessee under licensing arrangement and hence such rights are within the scope of IAS 38 but not IFRS 16. With regard to (b) above, the submitter questions how to assess the control element from the ‘underlying resource’ in IAS 38:13 (i.e. the customer’s right to access the supplier’s software or the application software itself?). The entity has to assess whether it has the power to obtain the future economic benefits flowing from that right and to restrict the access of others to those benefits. The staff conclude that it depends on the particular terms and conditions of the SaaS arrangements (such as whether the customer has a right to possess a copy of the application software and the level of configurations specified by the customer) and judgement is required. If the customer does not control the right to assess the supplier's software, the customer accounts for the arrangement as a service contract. The staff think in most SaaS arrangements the customer will not have an intangible asset for the right to access the supplier’s software.

With regard to (c) above, the concerns of the submitter are the measurement questions in the aspects of allocation of payments to different components of the arrangement and the variable payments. There is lack of specific requirements in IAS 38 and the staff consider the customer could look to other IFRS Standards (such as IFRS 16 that provides requirements on allocating the consideration in a contract to different components). Regarding the accounting for variable payments, the Committee has previously discussed the same issue and concluded at its March 2016 meeting that the matter is too broad to address and decided not to add this matter to its agenda and issued an agenda decision to that effect. Accordingly, the staff consider the Committee should not opine upon the measurement of the intangible asset and any related liability for SaaS arrangements.

Staff recommendation

The staff consider that the requirements in existing IFRS Standards provide an adequate basis for the customer to account for rights to access the supplier’s application software in SaaS arrangements. The staff recommend the Committee does not add this matter to its standard-setting agenda but instead publishes an agenda decision that clarifies the following matters: (a) an entity reads IFRS 16:3(e) to cover all software licensing agreements and, thus, that an entity account for all rights to access or use software applying IAS 38, not IFRS 16; (b) ‘underlying resource’ in IAS 38:13 refers to the asset that an entity would recognise as an intangible asset; (c) whether the customer controls the right of access depends on the particular terms and conditions of the arrangement. However, simply having a right to access the supplier’s application software would not be sufficient to indicate that the customer controls a resource at contract inception that meets the definition of an intangible asset.


Most of the Committee members agreed with the staff analysis in respect of classification of the rights to access software as intangible assets under IAS 38 rather than a lease under IFRS 16, although one of the Committee members pointed out that he cannot see why intellectual property for a software is different from that for a film.

Before starting the discussion, the staff clarified that the issue is when the customer can actually control the intangible asset, since the customer only obtains the rights to access the software but not the software itself. A Committee member is asking if there is actually a two-step approach, i.e. if the customer does not control the software, it has to consider whether or not it controls the rights to access the software. For SaaS arrangements, the only place one can use the software is on the vendor's cloud. If there is significant configuration, the software is probably regarded as an asset that the customer controls, just like the situation that the software is downloaded onto the customer's computer and the customer can run it independently. The Committee discussed different indicators of control but there is diversity in views among Committee members. For example, a Committee member considered customisation may not be a key indicator of control because the supplier can license it to others even though the supplier provided a highly customized software; another Committee member suggested that exclusivity of the software (i.e. ability to prohibit other customers from using the software) should also be a factor to consider but there are some dissenting views that this is not a key factor.

A Committee member asked about how US GAAP deals with this issue. In response to that, another Committee member pointed out that it depends on whether the customer has the ability to take the software to its own server symmetric to the vendor transferring control of a product. If no, that arrangement is regarded as a service contract.

Since there were different views among the Committee members, the Chair suggested the staff to prepare an updated proposed wording for the tentative Agenda Decision and that the Committee could discuss the issue again on the second day of the meeting.

In the Day 2 meeting the staff said that because in most SaaS arrangements the customer has no control over the software they had updated the draft by removing the term "take possession of the software" and inserting "right to access the control of the software." Some Committee members insisted that analysis of whether the customer has the ability to restrict others from using the software should be added. Others said that they should expand the scope of IFRS 16 and IAS 38. The Chair has stated it is likely that no standard-setting will be done for the matter. There were a lot of debates over the "right to access the software" among Committee members.


The Chair suggested that the Committee needed more time on the proposed wording and will come back to this next time. Accordingly, no decisions or conclusions were reached.

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