SIC-32 Intangible Assets – Website Costs

What Is SIC-32?

SIC-32 is an interpretation originally developed by the Standing Interpretations Committee of the former International Accounting Standards Committee. The International Accounting Standards Board issued it in March 2002. It does not create a new standard. It tells preparers how the existing rules in IAS 38 apply to one specific and very common situation: a business spending money to build, improve and run its own website.

The interpretation matters because websites are no longer brochures. For many entities, the website is a sales channel, a customer portal or the core of the business. Without clear guidance, two companies could spend the same amount on the same project and report very different results, one expensing everything and the other capitalizing everything.

SIC-32 has remained in the IFRS Accounting Standards ever since. According to the IFRS Foundation, later standards have made only minor consequential amendments to it, including IFRS 15 Revenue from Contracts with Customers, IFRS 16 Leases, the 2018 amendments to references to the Conceptual Framework, and IFRS 18 Presentation and Disclosure in Financial Statements (issued April 2024). None of these changed the underlying principle.

Scope of SIC-32 – When Does the Interpretation Apply?

SIC-32 applies to expenditure on purchasing, developing and operating a website, whether the site is for internal access (an intranet) or external access (customers and the public). It does not stand alone. It sits on top of IAS 38 and several neighboring standards.

SIC-32 Accounting Treatment for Website Development Costs

The whole interpretation can be reduced to four rules. If you remember these, you can reason through almost any website cost.

1. An internally developed website is an intangible asset. It is identifiable, controlled by the entity and, if it meets the criteria, expected to generate future benefits. IAS 38 therefore governs it.
2. Capitalization requires more than the general IAS 38 test. The entity must also be able to demonstrate how the website will generate probable future economic benefits, for example by taking orders for goods and services.
3. A promotional website cannot be capitalized. All expenditure to develop a website solely or primarily to promote and advertise the entity’s own products and services is recognized as an expense when incurred, because future benefits cannot be reliably separated from the advertising effect.
4. Stage matters. Planning is treated like research and expensed. Development stages can be capitalized. Operating costs are generally expensed, unless a specific enhancement meets the recognition criteria.

Five Stages of Website Development Costs

SIC-32 breaks a website project into five stages and gives each its own default treatment. Think of it as a timeline running from the first idea to day-to-day upkeep.

1. 1PlanningResearch-type work. Expense.
2. 2Application and infrastructure developmentCapitalize if criteria are met.
3. 3Graphical designCapitalize if criteria are met.
4. 4Content developmentCapitalize, except for advertising content.
5. 5OperatingExpense, except qualifying enhancements.

Stage 1: Planning

The planning stage has the same character as the research phase in IAS 38. Typical activities include undertaking feasibility studies, defining objectives and specifications, evaluating alternative products and suppliers, and selecting preferences. These costs are always expensed because the entity cannot yet demonstrate that an asset exists.

Stage 2: Application and infrastructure development

This is where the website becomes real. Activities include obtaining a domain name, purchasing or developing operating software, developing code for the application, installing developed applications on the web server and stress testing. Once the IAS 38 development criteria are satisfied, directly attributable costs are capitalized as part of the website intangible asset. Hardware purchased in this stage goes to IAS 16, not to the intangible.

Stage 3: Graphical design

Designing the appearance of web pages, including layout and color, belongs to the development phase. If the criteria are met, directly attributable design costs are capitalized.

Stage 4: Content development

Content is where many entities go wrong. Creating, purchasing, preparing and uploading text or graphics before completion of the website is capitalized to the extent it is not developed to advertise and promote the entity’s own products and services. For example, product data that drives an online ordering system can qualify, while promotional banners and brand messaging cannot.

Stage 5: Operating

The operating stage begins once the website is complete and available for use. From that point, updating graphics, revising content, backing up data, reviewing security, registering with search engines and analyzing usage are expensed as incurred. The exception is expenditure that enhances the website, such as adding a new function that is probable to generate additional future economic benefits and that meets the IAS 38 recognition criteria. Such enhancement costs are capitalized.

Website Development Costs – Capitalization vs Expense (Decision Flow)

Use this sequence for any individual website cost.

1. Is the cost for hardware, hosting or leased assets? Hardware: IAS 16   Hosting service fee: Expense as service received   Lease: IFRS 16
2. Is it a planning or feasibility cost, or incurred before the development stage begins? Yes: Expense   No: continue.
3. Is the website (or this content) mainly for advertising and promoting your own products and services? Yes: Expense   No: continue.
4. Can you demonstrate how the website will generate probable future economic benefits? (For example, it takes orders, processes bookings or delivers a paid service.) No: Expense   Yes: continue.
5. Are all six IAS 38 development criteria met? No: Expense   Yes: continue.
6. Is the cost directly attributable to creating, producing or preparing the website for its intended use? Yes: Capitalize   No (general overheads, training, inefficiencies): Expense.
7. Is the website already live, and is this routine upkeep rather than a new capability? Routine upkeep: Expense   Qualifying enhancement: Capitalize.

SIC 32 Decision Framework – How to Account for Website Costs

The table below turns the stages into a working reference. Treatment assumes the website is not merely promotional and that the IAS 38 criteria are met where capitalization is shown.

IAS 38 Recognition Criteria for Website Costs

Passing through the right stage is necessary but not sufficient. Under IAS 38 (paragraph 57), an intangible asset arising from development is recognized only when an entity can demonstrate all six of the following. Here is how each applies to a website.

What counts as a directly attributable cost?

Directly attributable costs can include payroll for staff working on the project, fees to external developers and designers, the cost of materials and services consumed, and the registration of legal rights such as a domain name. General administrative overheads, inefficiencies and initial operating losses, and staff training are excluded.

Initial Measurement, Amortization and Impairment of Website Costs

• Initial measurement: at cost, being directly attributable expenditure from the date the recognition criteria are first met.
• Subsequent measurement: IAS 38 offers a cost model or a revaluation model. Revaluation requires an active market for the asset, which is extremely unlikely for a website, so the cost model is almost always used.
• Useful life: SIC-32 states that the best estimate of a website’s useful life should be short, reflecting rapid technological change and evolving customer expectations.
• Amortization: begins when the website is available for use, normally on a straight-line basis, and the period and method are reviewed at least at each financial year end.
• Impairment: assessed under IAS 36 Impairment of Assets whenever there are indicators, for example a planned platform replacement or a collapse in online sales.
• Derecognition: on disposal, retirement or replacement, with any gain or loss recognized in profit or loss.

SIC-32 Practical Example with Journal Entries

The following is a fictional illustration. Meridian Retail Ltd builds an online store that will take customer orders and payments. All amounts are in US dollars, and the IAS 38 criteria are met from the start of the development stage.

Journal entries at the end of the project

After launch

Assume management estimates a three-year useful life with straight-line amortization. Annual amortization is US$40,000 (US$120,000 divided by three), or about US$3,333 per month from the go-live date.

In the first operating year, Meridian spends US$6,000 on content refreshes, backups and SEO monitoring, which is expensed. It also spends US$18,000 adding a new subscription checkout function that is probable to generate additional revenue and meets the recognition criteria, so that cost is capitalized as an enhancement and amortized over its useful life.

SIC-32 Disclosure Requirements

SIC-32 does not add its own disclosure paragraphs. The disclosures come from IAS 38 and apply to the website asset like any other intangible.

• Separate disclosure of internally generated intangible assets from other intangibles, by class (IAS 38.118)
• Useful lives or amortization rates, and the amortization methods used
• Gross carrying amount and accumulated amortization and impairment at the start and end of the period, with a reconciliation of movements
• The line item in the statement of profit or loss that includes amortisation
• The aggregate amount of research and development expenditure recognised as an expense in the period (IAS 38.126), which may include website planning and non-qualifying costs where they are research and development in nature
• Impairment disclosures required by IAS 36 where applicable

Common SIC-32 Accounting Mistakes to Avoid

1. Capitalizing a brochure website. If the site exists mainly to promote your products, every cost is an expense, regardless of how large the project was.
2. Capitalising planning costs. Feasibility and option studies are research-type costs. Capitalising them is not permitted.
3. Treating hosting as part of the asset. Hosting is a service consumed over time and is expensed as received.
4. Ignoring the “demonstrate future benefits” test. The general IAS 38 test is not enough for a website. You need a documented link between the site and revenue or cost savings.
5. Capitalising routine maintenance. Updating content, fixing bugs and backups are operating costs. Only genuine enhancements can be capitalised.
6. Choosing a long useful life. SIC-32 expects a short life. A ten-year life for a website is hard to defend.
7. Weak cost tracking. Without time sheets and cost codes, you cannot show reliable measurement, and the cost may have to be expensed.

How Does SIC-32 Apply to Cloud-Based Websites and SaaS Arrangements?

Cloud computing and SaaS arrangements

If a website or platform is run on software you access as a service rather than software you control, SIC-32 and IAS 38 may not apply to the arrangement itself. The IFRS Interpretations Committee has published agenda decisions on a customer’s right to access supplier software hosted in the cloud (March 2019) and on configuration or customisation costs in a cloud computing arrangement (April 2021). In many cases, the service fee is expensed over the contract term, and configuration costs are evaluated against those decisions. Read the agenda decisions, which are published on the IFRS Foundation website, before capitalising cloud-related spend.

Mobile apps and web applications

SIC-32 is written for websites, but the same logic of research versus development, plus the IAS 38 criteria, is applied by analogy in practice to apps and web platforms. Apply judgement, document your reasoning and be consistent from year to year.

Other frameworks

SIC-32 is part of IFRS Accounting Standards. The IFRS for SMEs Accounting Standard and national frameworks such as US GAAP have their own rules for website and software development costs, and the treatment can differ. Always check the framework and edition that actually applies to your entity.

Sources

• IFRS Foundation: SIC-32 Intangible Assets – Web Site Costs
• IFRS Foundation: IAS 38 Intangible Assets
• IFRS Foundation: IAS 16 Property, Plant and Equipment

Disclaimer: This guide is for general information and education. It summarises SIC-32 and related IFRS requirements and is not accounting, audit, tax or legal advice. The worked example is fictional. For binding requirements, refer to the official text of IFRS Accounting Standards or consult a qualified professional.