INT 132

AusCF paragraphs and footnotes included in this Interpretation apply only to:

(a) not-for-profit entities; and

(b) for-profit entities that are not applying the Conceptual Framework for Financial Reporting (as identified in AASB 1048 Interpretation of Standards).

Such entities are referred to as ‘AusCF entities’. For AusCF entities, the term ‘reporting entity’ is defined in AASB 1057 Application of Australian Accounting Standards and Statement of Accounting Concepts SAC 1 Definition of the Reporting Entity also applies. For-profit entities applying the Conceptual Framework for Financial Reporting (as set out in paragraph Aus1.1 of the Conceptual Framework) shall not apply AusCF paragraphs or footnotes.

An entity may incur internal expenditure on the development and operation of its own web site for internal or external access. A web site designed for external access may be used for various purposes such as to promote and advertise an entity’s own products and services, provide electronic services, and sell products and services. A web site designed for internal access may be used to store company policies and customer details, and search relevant information.

The stages of a web site’s development can be described as follows:

(a) Planning—includes undertaking feasibility studies, defining objectives and specifications, evaluating alternatives and selecting preferences.

(b) Application and Infrastructure Development—includes obtaining a domain name, purchasing and developing hardware and operating software, installing developed applications and stress testing.

(c) Graphical Design Development—includes designing the appearance of web pages.

(d) Content Development—includes creating, purchasing, preparing and uploading information, either textual or graphical in nature, on the web site before the completion of the web site’s development. This information may either be stored in separate databases that are integrated into (or accessed from) the web site or coded directly into the web pages.

Once development of a web site has been completed, the Operating stage begins. During this stage, an entity maintains and enhances the applications, infrastructure, graphical design and content of the web site.

When accounting for internal expenditure on the development and operation of an entity’s own web site for internal or external access, the issues are:

(a) whether the web site is an internally generated intangible asset that is subject to the requirements of AASB 138; and

(b) the appropriate accounting treatment of such expenditure.

This Interpretation does not apply to expenditure on purchasing, developing, and operating hardware (eg web servers, staging servers, production servers and Internet connections) of a web site. Such expenditure is accounted for under AASB 116. Additionally, when an entity incurs expenditure on an Internet service provider hosting the entity’s web site, the expenditure is recognised as an expense under AASB 101.88 and the Conceptual Framework for Financial Reporting (as identified in AASB 1048 Interpretation of Standards) when the services are received.

Notwithstanding paragraph 5, in respect of AusCF entities, this Interpretation does not apply to expenditure on purchasing, developing, and operating hardware (eg web servers, staging servers, production servers and Internet connections) of a web site. Such expenditure is accounted for under AASB 116. Additionally, when an entity incurs expenditure on an Internet service provider hosting the entity’s web site, the expenditure is recognised as an expense under AASB 101.88 and the Framework for the Preparation and Presentation of Financial Statements (as identified in AASB 1048 Interpretation of Standards)^[AusCF1] when the services are received.

AASB 138 does not apply to intangible assets held by an entity for sale in the ordinary course of business (see AASB 102 and AASB 15) or leases of intangible assets accounted for in accordance with AASB 16. Accordingly, this Interpretation does not apply to expenditure on the development or operation of a web site (or web site software) for sale to another entity or that is accounted for in accordance with AASB 16.

An entity’s own web site that arises from development and is for internal or external access is an internally generated intangible asset that is subject to the requirements of AASB 138.

A web site arising from development shall be recognised as an intangible asset if, and only if, in addition to complying with the general requirements described in AASB 138.21 for recognition and initial measurement, an entity can satisfy the requirements in AASB 138.57. In particular, an entity may be able to satisfy the requirement to demonstrate how its web site will generate probable future economic benefits in accordance with AASB 138.57(d) when, for example, the web site is capable of generating revenues, including direct revenues from enabling orders to be placed. An entity is not able to demonstrate how a web site developed solely or primarily for promoting and advertising its own products and services will generate probable future economic benefits, and consequently all expenditure on developing such a web site shall be recognised as an expense when incurred.

Any internal expenditure on the development and operation of an entity’s own web site shall be accounted for in accordance with AASB 138. The nature of each activity for which expenditure is incurred (eg training employees and maintaining the web site) and the web site’s stage of development or post-development shall be evaluated to determine the appropriate accounting treatment (additional guidance is provided in the illustrative example accompanying this Interpretation). For example:

(a) the Planning stage is similar in nature to the research phase in AASB 138.54–.56. Expenditure incurred in this stage shall be recognised as an expense when it is incurred.

(b) the Application and Infrastructure Development stage, the Graphical Design stage and the Content Development stage, to the extent that content is developed for purposes other than to advertise and promote an entity’s own products and services, are similar in nature to the development phase in AASB 138.57–.64. Expenditure incurred in these stages shall be included in the cost of a web site recognised as an intangible asset in accordance with paragraph 8 of this Interpretation when the expenditure can be directly attributed and is necessary to creating, producing or preparing the web site for it to be capable of operating in the manner intended by management. For example, expenditure on purchasing or creating content (other than content that advertises and promotes an entity’s own products and services) specifically for a web site, or expenditure to enable use of the content (eg a fee for acquiring a licence to reproduce) on the web site, shall be included in the cost of development when this condition is met. However, in accordance with AASB 138.71, expenditure on an intangible item that was initially recognised as an expense in previous financial statements shall not be recognised as part of the cost of an intangible asset at a later date (eg if the costs of a copyright have been fully amortised, and the content is subsequently provided on a web site).

(c) expenditure incurred in the Content Development stage, to the extent that content is developed to advertise and promote an entity’s own products and services (eg digital photographs of products), shall be recognised as an expense when incurred in accordance with AASB 138.69(c). For example, when accounting for expenditure on professional services for taking digital photographs of an entity’s own products and for enhancing their display, expenditure shall be recognised as an expense as the professional services are received during the process, not when the digital photographs are displayed on the web site.

(d) the Operating stage begins once development of a web site is complete. Expenditure incurred in this stage shall be recognised as an expense when it is incurred unless it meets the recognition criteria in AASB 138.18.

A web site that is recognised as an intangible asset under paragraph 8 of this Interpretation shall be measured after initial recognition by applying the requirements of AASB 138.72–.87. The best estimate of a web site’s useful life shall be short.

When applied or operative, this Interpretation supersedes Interpretation 132 Intangible Assets—Web Site Costs issued in July 2004.

This Interpretation applies to annual periods beginning on or after 1 January 2018. Earlier application is permitted for periods beginning on or after 1 January 2014 but before 1 January 2018.

AASB 16, issued in February 2016, amended paragraph 6. An entity shall apply that amendment when it applies AASB 16.

AASB 2019-1 Amendments to Australian Accounting Standards – References to the Conceptual Framework, issued in 2019, added AusCF paragraphs and amended paragraph 5. An entity shall apply the amendments for annual periods beginning on or after 1 January 2020. Earlier application is permitted if at the same time an entity also applies all other amendments made by AASB 2019-1. An entity shall apply the amendments to Interpretation 132 retrospectively in accordance with AASB 108 Accounting Policies, Changes in Accounting Estimates and Errors. However, if an entity determines that retrospective application would be impracticable or would involve undue cost or effort, it shall apply the amendments to Interpretation 132 by reference to paragraphs 23–28, 50–53 and 54F of AASB 108.

An intangible asset is defined in IAS  38.87 as an identifiable non-monetary asset without physical substance held for use in the production or supply of goods or services, for rental to others, or for administrative purposes. IAS 38.98 provides computer software as a common example of an intangible asset. By analogy, a web site is another example of an intangible asset.

IAS 38.6856 requires expenditure on an intangible item to be recognised as an expense when incurred unless it forms part of the cost of an intangible asset that meets the recognition criteria in IAS 38.18–.6755. IAS 38.6957 requires expenditure on start-up activities to be recognised as an expense when incurred. An entity developing its own web site for internal or external access is not undertaking a start-up activity to the extent that an internally generated intangible asset is created. The requirements and guidance in IAS 38.52–.6740.55, in addition to the general requirements described in IAS 38.2119 for recognition and initial measurement of an intangible asset, apply to expenditure incurred on the development of an entity’s own web site. As described in IAS 38.65–.6753–.55, the cost of a web site recognised as an internally generated intangible asset comprises all expenditure that can be directly attributed, or allocated on a reasonable and consistent basis, and is necessary to creating, producing and preparing the asset for it to be capable of operating in the manner intended by management its intended use.

IAS 38.5442 requires expenditure on research (or on the research phase of an internal project) to be recognised as an expense when incurred. The examples provided in IAS 38.5644 are similar to the activities undertaken in the Planning stage of a web site’s development. Consequently, expenditure incurred in the Planning stage of a web site’s development is recognised as an expense when incurred.

IAS 38.5745 requires an intangible asset arising from the development phase of an internal project to be recognised only if an entity can demonstrate fulfilment of the six criteria specified. One of the criteria is to demonstrate how a web site will generate probable future economic benefits (IAS 38.5745(d)). IAS 38.6048 indicates that this criterion is met by assessing the economic benefits to be received from the web site and using the principles in IAS 36 Impairment of Assets, which considers the present value of estimated future cash flows from continuing use of the web site. Future economic benefits flowing from an intangible asset, as stated in IAS 38.17, may include revenue from the sale of products or services, cost savings, or other benefits resulting from the use of the asset by the entity. Therefore, future economic benefits from a web site may be assessed when the web site is capable of generating revenues. A web site developed solely or primarily for advertising and promoting an entity’s own products and services is not recognised as an intangible asset, because the entity cannot demonstrate the future economic benefits that will flow. Consequently, all expenditure on developing a web site solely or primarily for promoting and advertising an entity’s own products and services is recognised as an expense when incurred.

Under IAS 38.2119, an intangible asset is recognised if, and only if, it meets specified criteria. IAS 38.6553 indicates that the cost of an internally generated intangible asset is the sum of expenditure incurred from the date when the intangible asset first meets the specified recognition criteria. When an entity acquires or creates content for purposes other than to advertise and promote an entity’s own products and services, it may be possible to identify an intangible asset (eg a licence or a copyright) separate from a web site. However, a separate asset is not recognised when expenditure is directly attributed, or allocated on a reasonable and consistent basis, to creating, producing, and preparing the web site for it to be capable of operating in the manner intended by management its intended use — the expenditure is included in the cost of developing the web site.

IAS 38.6957(c) requires expenditure on advertising and promotional activities to be recognised as an expense when incurred. Expenditure incurred on developing content that advertises and promotes an entity’s own products and services (eg digital photographs of products) is an advertising and promotional activity, and consequently recognised as an expense when incurred in accordance with IAS 38.57(c).

Once development of a web site is complete, an enterprise begins the activities described in the Operating stage. Subsequent expenditure to enhance or maintain an enterprise’s own web site is recognised as an expense when incurred unless it meets the recognition criteria in IAS 38.60. IAS 38.61 explains that if the expenditure is required to maintain the asset at its originally assessed standard of performance, then the expenditure is recognised as an expense when incurred.^[1] Once development of a web site is complete, an entity begins the activities described in the Operating stage. Subsequent expenditure to enhance or maintain an entity’s own web site is recognised as an expense when incurred unless it meets the recognition criteria in IAS 38.18. IAS 38.20 explains that most subsequent expenditures are likely to maintain the future economic benefits embodied in an existing intangible asset rather than meet the definition of an intangible asset and the recognition criteria set out in IAS 38. In addition, it is often difficult to attribute subsequent expenditure directly to a particular intangible asset rather than to the business as a whole. Therefore, only rarely will subsequent expenditure—expenditure incurred after the initial recognition of a purchased intangible asset or after completion of an internally generated intangible asset—be recognised in the carrying amount of an asset.^[2]

An intangible asset is measured after initial recognition by applying the requirements of IAS 38.72–.8763–.78. The revaluation model Allowed Alternative Treatment in IAS 38.7564 is applied only when the fair value of an intangible asset can be determined by reference to an active market.^[3] However, as an active market is unlikely to exist for web sites, the cost model Benchmark Treatment applies. Additionally, since IAS 38.84 states that an intangible asset always has a finite useful life, a web site that is recognised as an asset is amortised over the best estimate of its useful life under IAS 38.79. As as indicated in IAS 38.9281, many intangible assets are susceptible to technological obsolescence, and given the history of rapid changes in technology, the useful life of web sites will be short.

Following the issue of the revised Conceptual Framework for Financial Reporting in 2018 (2018 Conceptual Framework), the Board issued Amendments to References to the Conceptual Framework in IFRS Standards. In SIC‑32, that document replaced a reference in paragraph 5 to the Framework for the Preparation and Presentation of Financial Statements adopted by the Board in 2001 (Framework) with a reference to the 2018 Conceptual Framework. The Board does not expect that replacement to have a significant effect on the application of the Interpretation. Paragraph 5 describes the accounting for expenditure excluded from the scope of the Interpretation. That paragraph also states that this type of expenditure—expenditure on an Internet service provider hosting the entity’s web site—is recognised as an expense, so the amendment will not affect the accounting treatment.