Entities should not overlook two important agenda decisions made by the IFRS Interpretations Committee over the past year that could have a material impact on your 31 December 2021 financial statements. These are:
Configuration or customisation costs in a cloud computing arrangement
Entities using cloud-based software in a Software as a Service (SaaS) arrangement may incur significant costs in relation to configuration and customisation of the supplier’s application software to which they receives access.
SaaS arrangements are usually accounted for as service contracts and not as intangible assets (refer IFRIC agenda decision – March 2019). Even though an intangible asset is not recognised in the balance sheet for the SaaS arrangement, in the past, some companies have nevertheless capitalised configuration and customisation costs relating to these arrangements as ‘intangible assets’.
For 31 December 2021 many companies may need to remove these capitalised costs from their balance sheets (i.e. expense the costs), and retrospective adjustments will be required to prior year comparative information. Given that the IFRIC agenda decision was published in April 2021, entities have had sufficient time to identify past costs that need to be expensed in 31 December 2021 financial statements.
These retrospective adjustments are treated as a change in accounting policy because the IFRIC decision is merely clarifying the accounting treatment for a transaction that was previously contentious, i.e. it is not accounted for as an error.
Refer to our May 2021 Accounting Alert article for an explanation of the April 2021 IFRIC agenda decision regarding configuration and customisation costs in a SaaS arrangement.
Supply chain financing (reverse factoring) arrangements
This December 2020 IFRIC agenda decision outlines how IFRS standards already provide guidance on the appropriate accounting classification and disclosures for reverse factoring arrangements and considers the following questions:
- Should the reverse factoring arrangements be classified as trade payables or as borrowings in the balance sheet?
- How should these arrangements be presented in the cash flow statement?
- What additional disclosures are required about reverse factoring arrangements?
Refer to our May 2021 Accounting Alert article for more information.
(For proposed upcoming changes to supply chain financing please refer to our accompanying article.)
Other IFRIC agenda decisions
Entities may also need to consider whether other IFRIC agenda decisions could affect 31 December 2021 financial statements: