Accounting Standards

Half of accounts do not refer to SDC as assets, says ACCA

A recent report from ACCA and the University of Glasgow examines the issue of Software Development Costs in financial reporting

Around half of accounts from companies worldwide do not refer to Software Development Costs (SDC) as assets in their financial reporting, according to a new report from the Association of Chartered Certified Accountants (ACCA).

The report from ACCA and the University of Glasgow’s Adam Smith Business School, titled ‘The Capitalisation of Intangibles Debate: Software Development Costs’ examines the issue of SDCs and how they are accounted for.

In the report, the collected research summarises how many companies capitalise SDCs during the year and how many report Research and Development costs in their income statements.

The research found 80% of companies in China, Japan, Taiwan and Korea referred to software development in their accounts, while less than 20% of companies in Mexico, Malaysia and Singapore.

Software development was found to be recognised by companies which are more “international and inquisitive”, according to ACCA.

Richard Martin, head of corporate reporting at ACCA, said: “There is a large and growing gap between the stock market value of businesses and the net book value shown by their financial statements.

“By some estimates net book value may be as little as 15% of market value. Some of this gap will be represented by intangibles not recognised in those balance sheets, but which could be even under the existing International Financial Reporting Standards (IFRS).”

Professor Ioannis Tsalavoutas from the University of Glasgow said: “The financial statements of all listed companies using IFRS from 39 countries were looked at over the period 2015 to 2019.

“About half of the accounts did not refer to software costs either as an expense or capitalised as an asset. Of the half that did (about 40,000), 62% capitalised a software asset. Both of those measures are markedly better than we found with R&D costs.”

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