SIC 32—Website Costs – Intangible Assets: Scope, Website Use

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 as per IAS 38.

SIC 32 Website Costs

1. Issue

When ‘accounting for internal expenditure‘ on the development and operation of the entity’s own website for internal or external access the ISSUES are:

  • Whether the website is an internally generated intangible asset as per IAS 38;
  • The appropriate accounting treatment of such expenditure.

2. Consensus

An entity’s own website that arises from the development and is for internal or external access is an internally generated intangible asset as per IAS 38.
If a website is developed solely (or primarily) for promoting or advertising its own products and services then an entity will not be able to demonstrate how it will generate probable future economic benefits.
All expenditures on developing such a website should be recognized as an expense when incurred.
The best estimate of a website’s useful life should be short.
sic 32

SIC 32 – Scope

SIC 32 Website Costs DOES NOT apply to expenditures on:

  • Purchasing, developing and operating hardware of a website. The cost of purchasing, developing and operating hardware (e.g. servers and internet connections) of a website are accounted for as property, plant and equipment (IAS 16).
  • An Internet Service Provider (ISP) hosting the entity’s own website. (This expenditure is recognized as an expense as and when the services are received).
  • The development or operation of a website for sale to another entity.

SIC 32 – Use of Website

1. External

A Website Designed for External Access May be Used For Various Purposes Such as to:
– Advertise products and services;
– Provide electronic services; AND
– Sell products and services.

2. Internal

A Website Designed for Internal Access May be Used to:
– Store company policies/customer details; AND
– Search relevant information.

Stages of Website Development As Per SIC 32

1. Planning

This stage is similar in nature to the ‘Research Phase‘.

Activities
(a) Undertaking feasibility studies
(b) Defining hardware and software specifications
(c) Evaluating alternative products and suppliers
(d) Selecting preferences
Accounting Treatment
EXPENSE when incurred.

2. Application and Infrastructure Development

This stage is similar in nature to the ‘Development Phase‘.

Activities
(a) Obtaining a domain name
(b) Purchasing or developing operating software (e.g. operating system and server software)
(c) Developing code for the application
(d) Installing developed applications on the web server
(e) Stress Testing
Accounting Treatment
CAPITALIZE as an intangible asset if expenditure:
(a) Meets the following recognition criteria as per IAS 38:
– the technical feasibility of completing the website
– its intention to complete the website and use it
– its ability to use the website
– how the website asset will generate probable future economic benefits
– the availability of adequate technical, financial and other resources to complete the development and to use the website
– ability to measure the expenditure attributable to the website during its development
(b) Is NOT for promoting or advertising an entity’s own product or service.

3. Graphical Design Development

This stage is similar in nature to the ‘Development Phase‘.

Activities
(a) Designing the appearance of web pages
Accounting Treatment
Reference: ‘Application and Infrastructure Development‘ (Similar)

4. Content Development

This stage is similar in nature to the ‘Development Phase‘.

Activities
(a) Creating, purchasing, preparing and uploading information either textual or graphical in nature on the website before the completion of the website’s development
Accounting Treatment
Reference: ‘Application and Infrastructure Development‘ (Similar)

5. Operating

Activities
(a) Updating graphics and revising content
(b) Adding new functions, features and content
(c) Registering the website with search engines
(d) Backing up data
(e) Reviewing security access
(f) Analyzing the usage of the website
Accounting Treatment
EXPENSE when incurred, unless it fulfills the IAS 38 criteria for the capitalization of subsequent expenditure (this will only occur in rare circumstances).

Synopsis

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’ as per IAS 38.

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