Capitalising your cloud
Achieving the right balance of operational and capital costs
Historically, cloud technology has made reference to the advantages of transferring costs from the balance sheet (capex) to the income statement (opex). However, an unintended consequence has been the perception that few, if any, cloud related costs can be capitalised and this may not be the desired outcome for every organisation.
Every IT organisation is under pressure to deliver services as efficiently as possible, utilising infrastructure and services that have a significant impact on the financial position and results of the organisation.
As a result, IT leadership must speak the language of finance to secure investment and support from the board, especially from the CFO. This paper is designed to help IT Leaders to do this.
Our key findings
- Traditional cloud sales models market opex as a key driver for adoption, but this is not necessarily desirable for organisations.
- We think companies could be capitalising too few of their cloud software implementation costs
- Organisations may have opportunities to start capitalising cloud hardware costs under IFRS in the next few years
- Optimising financial factors during procurement decision making for cloud-centric business cases can be achieved by understanding the different P&L impacts of on-premise vs cloud.
Businesses could miss out on opportunities to optimise capitalisation of cloud by not fully understanding the different P&L factors affecting procurement decision making.
It may be possible, in the future, to capitalise IaaS under IFRS16, under the right circumstances. Engage with Cloud Service Providers to review existing arrangements and the associated accounting consequences.
Technology leaders should look at ways to better work with finance to make the right business procurement decisions and to strengthen their business cases.
Deloitte expert viewpoint
‘Traditionally cloud services have been associated with opex rather than capex. We recognise that this is not necessarily desirable for all organisations.
This paper is a cross-firm collaboration drawing upon our understanding of technology and finance, bringing a unique point of view to challenge how cloud spend should could be accounted for.’
John Winstanley, Partner, Technology