Recognition the right to use the software as an intangible asset or expense

[Scarlet]

Hello,

The company (developer) developed the software and transfer the rights of use to several companies (contractors). The contractors are obliged to use the software only for personal purposes.
Property/non-property copyright on the program remains with the developer.
The developer is entitled at any time to update and/or improve it personally and/or through third parties, as well as to use the product at his discretion, including for commercial purposes. It is specified that the software is transferred to the contractor only with unlimited, lifetime, non-exclusive right of use and cannot transfer it to third parties before receiving the prior written consent of the developer.

I am not sure if the contractors can recognize the software as an intangible asset (not sure if they have a control) which is a one of the critical attributes of an intangible asset:

1) Identifiability.
2) control (power to obtain benefits from the asset)
3) future economic benefits (such as revenues or reduced future costs)

Can you help me?

I think that the both developer and the contractors can recognize the software as an intangible asset. The developer has "property rights" and the contractors - "a license" on this asset.

[Marek Muc]

How do customers access the software? Is it through on-premises installation or via a web browser (SaaS)?

PS. Instead of using generic titles like 'Intangible assets (IAS 38)', please propose a specific title related to your question and I'll update it.

[Scarlet]

Hi Marek,
It is through on premises installation.

PS. Topic name- Recognition the right to use the software as an intangible asset or expense

[Scarlet]

I want to clarify, access is actually hybrid (users of the program can use the software remotely)

[Marek Muc]

Licences for on-premise use can be recognised as intangible assets by your clients. Conversely, if it's just an access to software on your servers, then it's a revenue expense. See: https://ifrscommunity.com/knowledge-bas ... rvice-saas

The developer should capitalise this software once the 'development' phase begins as per IAS 38. Expenses recognised in the past cannot be reinstated as assets. See: https://ifrscommunity.com/knowledge-bas ... ble-assets

I suggest looking at the accounting policies of publicly traded software developers, such as SAP, particularly how they handle capitalising development expenditure. This area is a substantial aspect of their accounting, so you're likely to find detailed disclosures. If you come across anything interesting, please share it here!

[Scarlet]

Thank you Marek, I will look through.
I also wonder the information regarding cloud-based (internet) access. According to the new rules, I think it can still be recognized as an asset:

https://www.grantthornton.ca/insights/a ... angements/

Control criterias:
it has the contractual right to obtain the software without significant penalty (i.e., the ability to take delivery of the software without incurring significant cost), and
it can use the software separately without a significant reduction in utility/value and it is feasible for the entity to run the software on its own or on a third party's infrastructure.

[Marek Muc]

Please provide more details on the terms of the arrangement between the software developer and its clients

[Scarlet]

Marek,
The vendor has provided the customer with a android/IOS application tailored to their needs, granting them the right to use the app indefinitely with unlimited life. However, the vendor retains ownership of the source code, has the ability to update, enhance, and even sell the rights to the app to other customers.

The vendor retains control over the intellectual property (the source code) and has the flexibility to further develop the app, sell it to additional customers, or make it available for licensing to other parties.

The customer has the access to the application via internet, using vendor's IT infrastructure.

Criterias:
1. Identifiability - satisfied
2. Control (1.right to use the app without significant penalty- satisfied,2. can use the software without significant changes in value (I am not sure regarding this second criteria but the amount paid is not significant)
3.Benefits (cost savings)- satisfied

[Marek Muc]

Seems like a SaaS solution i.e. an access to the app installed on vendor's infrastructure -> revenue expense rather than an intangible asset: https://ifrscommunity.com/knowledge-bas ... rvice-saas

[Scarlet]

What about changes in 2024?

[Marek Muc]

There were no changes in IFRS in this respect.

[Scarlet]

Is it because of IT infrastructure or other factors?

[Scarlet]

I just wonder if there is a possibility to recognize it as an intangible asset if we do not choose simplified approach

[Marek Muc]

If you provide clients with a software package that they can install on their own IT infrastructure, it can be classified as an intangible asset.