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We are now well into the first quarter of 2021, and looking back on the best part of a year working in a more flexible way. Whilst it is certainly not a new concept, the meaning of the future of work and employee working patterns has significantly accelerated.
Whilst this will mean different things for different industries, our previous blog and recent evidence suggests that most companies are continuing to innovate their IT infrastructure from a predominantly on-premise base to a more increasingly cloud dominant, hybrid infrastructure.
As discussed in our TMT predictions, the Working From Anywhere (WFA) experiment, enforced by the pandemic, has thrown gas onto the already well fuelled ‘cloud spend’ fire. With WFA capabilities likely to influence the future of work, the shift towards the cloud dominant hybrid is not likely to slow.
Moving across the boardroom from the domain of the CIO to that of the CFO, this will require companies to grapple with the accounting for cloud technologies, which are far less codified in existing accounting standards than traditional on-premise solutions.
Specifically whilst the customer’s accounting for cloud access is relatively well understood (as a service expensed over the passage of time), accounting for upfront costs of access is less so. Consequently, as solutions move more and more to cloud based designs, the level of spend is only going to increase, and pressures to manage P&Ls by looking to capitalise as much as possible will emerge in an increasing number of boardrooms.
Helpfully, this was discussed by the IFRIC in the last quarter of 2020, and helpfully summarised in their December 2020 podcast. In short:
The staff were asked how a customer should account for the upfront costs of configuring and customising the suppliers’ application software to which it receives access. In its analysis, the staff considered that it would not be usual for the customer to identify and recognise an intangible in such a scenario, however through application of the IAS 8 hierarchy, the customer can consider whether it has received an upfront service using the guidance in IFRS 15. If the upfront service is not distinct, it may be appropriate to recognise the upfront costs as a prepayment asset, to be expensed as the services are rendered.
Nonetheless, despite the additional guidance provided this will remain an area of significant accounting judgement and one that is going to continue to be an area of audit attention, due to the level of spend, in the coming years.
If you are interested in hearing more about topical TMT issues, with a focus on accounting and finance, you can contact me directly by emailing firstname.lastname@example.org.
Tom is a Director in our Assurance practice, sitting within the Accounting Advisory team. Tom has a detailed knowledge of IFRS and UKGAAP, with specific expertise in revenue recognition, lease accounting and business combinations, and has supported clients in the telecoms sector for the past six years. Alongside Mark Tolley (UK TMT Audit and Assurance Leader) and Jim Brown (UK TMT Assurance Leader) Tom sits on the A&A telecoms leadership team, working on a number of key client accounts as well as driving the external thought leadership group, the Deloitte Telecom Finance Forum.