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Accounting for Software Development Costs (SDCs) in the digital age


22 Jun 2021


Innovation & Enterprise

Research findings have implications for global standard setters, say corporate reporting experts

With the subject of intangible assets on the agenda of accountancy standard setters and regulators for some time and increasingly gaining momentum, a new report from ACCA and Glasgow University’s Adam Smith Business School examines the issue of Software Development Costs (SDCs) and how they are accounted for.

SDCs - whether outsourced or in-house - could be expected to be a material issue for most companies, especially as the digital economy has grown.

Called The Capitalisation of Intangibles Debate: Software Development Costs, the research has collected and summarised evidence on how many companies capitalise SDCs during the year and how many report Research & Development costs in the income statement, but do not capitalise SDCs during the year. These are defined in the report as capitalisers and non-capitalisers.

The analysis reveals strong variations between countries. Over 80% of companies in China, Japan, Taiwan and Korea referred to software development in their accounts, compared to less than 20% of companies in Mexico, Malaysia and Singapore.

Across the sample, software development was also more likely to be recognised as an asset by more dynamic companies – those that are more international, more acquisitive and more leveraged.

Despite talk of digitalisation, in the period to 2019 software has not grown as a proportion of total assets in these companies. The report not only gives a picture of the current position on reporting software, but also includes good practice examples of disclosure.

Richard Martin, head of corporate reporting at ACCA says: ‘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 adds: ‘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.’

The findings have implications for standard setters including the International Accounting Standards Board (IASB), supporting further the case for a revision of the standard on intangibles (IAS38), but also for those relying on accounts – IFRS may be global standards but this case shows like others that their implementation is far from uniform across the world.

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The report can be downloaded from ACCA’s website here:

Or the University Glasgow’s here:

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About ACCA

ACCA (the Association of Chartered Certified Accountants) is the global professional body for professional accountants.

We’re a thriving global community of 233,000 members and 536,000 future members based in 178 countries and regions, who work across a wide range of sectors and industries. We uphold he highest professional and ethical values.

We offer everyone everywhere the opportunity to experience a rewarding career in accountancy, finance and management. Our qualifications and learning opportunities develop strategic business leaders, forward-thinking professionals with the financial, business and digital expertise essential for the creation of sustainable organisations and flourishing societies.

Since 1904, being a force for public good has been embedded in our purpose. We believe that accountancy is a cornerstone profession of society and is vital helping economies, organisations and individuals to grow and prosper. It does this by creating robust trusted financial and business management, combating corruption, ensuring organisations are managed ethically, driving sustainability, and providing rewarding career opportunities.

And through our cutting-edge research, we lead the profession by answering today’s questions and preparing for the future. We’re a not-for-profit organisation. Find out more at