In a cloud computing arrangement, a customer typically pays a fee to a vendor in exchange for access to software over the internet. The software is hosted by the vendor on the vendor’s computing infrastructure and the software itself may not itself be an intangible asset of the customer.

Customers in cloud computing arrangements often incur up-front costs to implement the software. Companies need to determine whether to capitalise or expense these implementation costs. This will depend on whether the company has a separate intangible asset or only a service contract and, if a service contract, whether the implementation service is distinct.

The IFRS Interpretations Committee's March 2021 agenda decision clarifies that in a cloud service contract where no intangible asset is recognised the customer needs to assess whether the implementation service is distinct from the service of receiving access to the software. Some companies may need to change their current accounting policy and could also see an impact in their income statement, including in prior periods.

KPMG’s ISG released the following Cloud implementation costs guide to help you apply the Committee's decision and includes a framework for analysing these costs and illustrative examples.

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