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Service Agreement - Cloud Computing Arrangement - Coggle Diagram
Service Agreement - Cloud Computing Arrangement
Service Agreement?
IAS 38 provides no guidance
IAS 8 par 10 -11 : Applicability of other standards dealing with related matters.
Need to determine which costs are capitalised and which ones are expensed.
IFRS 15 - includes requirements that suppliers apply in identifying the promised goods or services in a contract with a customer
Implementation costs and customisation
Thereby, issues are similar to those faced by SPS when supplier performs customization services to deliver the contract.
If arrangement not lease or IA, then is service Agreement
IFRS 15 applied to determine the identification of the separate services the customer receives in a cloud computing arrangement that does not include an intangible asset,
May result in change in Acc policy for some entities (Applied retrospectively)
IFRS 15 Application
Two Step process (Both) need to be present:
Can customer benefit on its own or with other readily available resources
If not distinct, combine G/S until it identifies a bundle that together is distinct
Is it separately identifiable from other promises in contract?
Promised goods/services need to be accounted for separately if distinct
Are the promised G/S outputs or inputs to a combined item(s)?
Combined item > sum of underlying g/s - Is substantially different
IFRS 15.29 Indicators that g/s not separately identifiable.
Examples Customers should consider in determining whether G/S are separately identifiable
IFRS 15.29(b) Presence of significant modification/customisation
If G/S modifies/customises another g/s (They are being assembled together as an input to produce combined output.
IFRS 15 Applied @ contract level
Thus is implementation services are provided by a party unrelated to service provider, it is assessed separately.
Customer allocates the fees on the separately identified g/s to determine when they are recognised as expenses.
Co. must develop & Apply ACC POLICY in terms of IAS8.10 in allocation of the fee.
E.G., Allocate Based on the stand-alone price of each distinct g/s
Recognition & Measurement
Not directly attributable costs of Preping asset for Intended use as under IAS 38, the cloud arrangement does not include software license
If arrangement requires additional code that customer has power to obtain EB - Assess IAS 38
They are services that provide future EB but no IA is acquired/Created
those services are received because those activities affect a resource that is controlled by the cloud computing SP & do not separately qualify as an IA
Changes to Other Systems e.g., Existing ERP
Generally expensed
Refer to IAS 38 Doc on treatment
Costs to configure
the service provided
Upgrades & enhancements result in additional functionality
Hardware costs - IAS 16
Normally require new software specifications Or
Research costs are expensed
Changes that augment all or part of existing software specifications
If Pre-paid, Recognise an Asset (Prepaid service expense)
See IAS 38 on Bridging modules and APIs
Cost to obtain/develop data conversion software is not part of cloud computing arrangement (Separate software component)
As/ when supplier provides access over contract term
All other costs of data conversion are expensed
Recognise the distinct service received
If there is NO UNDERLYING IA - Costs of testing is EXPENSED