Hamburg, Germany

Accounting Treatment of SaaS at the Level of Both Contractual Parties

By Imke Reich, nbs partners

“I can’t think of anything that isn’t cloud computing (…).” Larry Ellison, Chairman, Oracle

Software as a Service (SaaS), the largest market segment of cloud computing, is typically characterised as a service, where the provider grants the user the right to continuously access a software in a cloud infrastructure managed and controlled by the provider for a certain period. Accounting for SaaS arrangements at the level of the user is not clearly specified under IFRS.

The question arises as to whether SaaS possibly constitutes a lease under IFRS 16, an intangible asset under IAS 38, or whether it simply creates a normal continuing obligation. Accounting is strongly driven by the specific contractual arrangement in individual cases. There is no lease agreement, because the right to control an identified asset is not transferred in the case of a SaaS arrangement, if the provider configures and updates the software. Nor does the arrangement lead to the capitalisation of an intangible asset as the user does not derive the full economic benefit from the software as the provider also sells it to others. Thus, the costs are recognised in the P&L statement. But if the user can independently make specific configurations, an intangible asset under IAS 38 may exist.

At the level of the provider, revenues from cloud services are usually recognised according to IFRS 15 over the duration of the service contracts. Revenue for combined performance obligations is recognised over the longest period of all promises in the combined performance obligation. However, judgement is required in determining whether a service is considered as separate performance obligation.

Since the accounting on both levels requires judgement and the interpretation of individual contracts as well as the IFRS, it may be favourable for the standard setter to amend the underlying IFRS standards and thus reduce differing ways of presentation.

Imke Reich

Imke Reich

GGI member firm
nbs partners
Auditing & Accounting, Tax, Law Firm Services
Hamburg, Germany
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nbs partners is a multidisciplinary association of certified public accountants, lawyers, and certified tax advisors with a focus on the audit and advisory of small, mid-size and large entities, as well as international groups and high-net-worth individuals.

Imke Reich, Audit Manager, mainly handles annual and consolidated financial statements audits in accordance with IFRS and HGB. She also carries out audits in accordance with other laws (e.g. WpHG, KWG, VermAnlG). Before she became part of nbs partners in 2017 she worked for KPMG in Munich and Hamburg.

Published: Auditing, Reporting & Compliance Newsletter, No. 03, Spring 2020 l Photo: Marco2811 -

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