Summary
It is common that the expenses incurred for the acquisition or development of software are reflected as such in the balance sheet and are not considered the cost of capitalization of the intangible asset, despite the fact that international and Cuban standards allow it. The work analyzes the international situation in this regard, compares the Cuban accounting standards with the most recognized international standards, sets out the principles under which software must be registered in accounting, describes how to make entries accounting and balance sheet exposure. In each case, the peculiarities of the software as an intangible asset are analyzed.
Introduction
The computer industry is growing rapidly throughout the world and has become the main engine of innovation, improvement and productivity in the different sectors of the economy. The world market for New Information and Communication Technologies (NTIC) reached in 2001 the figure of 2.4 trillion dollars, of which close to a trillion belong to companies' software, services and internal expenses. (Aramburo, 2001)
Investments in software are one of the most dynamic areas (OECD, 2003). In the US they grew from just 3.0% in 1980 to 14.2% in 2000.
In 2000, investments in Software in Denmark and Sweden resulted in 50% of their investments in NTIC.
In France, software is the intangible component that has grown the most in the last 15 years.
However, only very few countries report intangibles such as software in their Accounting, which makes the real valuation of these investments more difficult, especially with regard to software developed by the companies themselves.
The most recent edition of the National Accounts System (SNA93) recommended that purchased software (and self-developed software) should be capitalized to the extent that it meets the requirements of traditional assets.
In the mid-90s this change added more than 1% to the Gross Domestic Product (GDP) of European countries. However, this increase in GDP has behaved in different ways in different countries, which has made many observers question the comparability of these statistics. An analysis by the Organization for Economic Cooperation and Development (OECD, 2003a) in October 2001 found that the difference in estimation procedures has contributed significantly to differences in software capitalization ratios.
According to the official economic reports of this organization, only the US makes and reports spending estimates on the three different software components (packaged software, proprietary software, and custom-purchased software). Other countries usually estimate only some of these components.
In the case of the United Kingdom, only the expense paid to suppliers is recorded.
In Finland, the cost of software acquired or developed in-house is reported that is not part of any research project and has a useful life of at least 1 year.
In France, software purchased with the computer is considered part of the hardware.
Despite the fact that software development takes place in three important areas: in software houses, in computer manufacturing systems companies and in user companies, the data available from the Netherlands only covers the first one.
There are many companies that do not report and also software developed for the public sector is excluded.
Cuban accounting standards (DISAIC, 2002) accept intangibles as assets, calling them fixed assets and giving them a treatment very similar to that of tangible fixed assets.
According to this norm, non-material assets owned by entities to carry out operating activities are included in this category. Their fundamental characteristic is that they do not take a corporeal form and are only visible in the legal instrument that justifies the right to their usufruct. They are recorded only if you have had to pay any acquisition or development cost to obtain them. In some cases they are amortized, which is equivalent to recovering the investment through its absorption as costs or expenses.
They include, among others, patents, trademarks, trade names, franchises, intellectual property, financial leasing with an option to buy, computer programs, etc.
As it can be seen, the software is considered by the Cuban accounting also as an asset, however in practice it is not common for companies to report them with this category, but most often they are considered as expenses at the time of their acquisition.
As regards internal control guidelines and standards, intangibles are completely ignored, which places them at a disadvantage compared to other assets that often bring less value to the organization.
It is from this analysis that we consider it necessary in Cuba to register as an intangible asset the software that meets the requirements established by the regulations. This on the one hand contributes to giving more value to our companies and on the other it lays the foundation for the legal protection of these products.
To start registering the software when there is no accounting culture in this sense, it is necessary to have accounting regulations that are sufficiently explicit to facilitate their assessment and exposure by the accountants of the companies and to homogenize the criteria to be applied in each case. In this sense, the Cuban accounting standard is insufficient.
After consulting the FRS10 norm issued in 1997 by the Accounting Standards Committee (ASC), IAS38 of 1998 of the International Accounting Standards Committee and the Resolution of January 21, 1992 of the Institute of Accounting and Auditing of Accounts of Spain, it can be concluded that regarding intangible assets, the Cuban standard is more closed, less precise, less explicit and less prudent than its international counterparts.
The deterioration of accounting practice and culture in Cuba for more than 2 decades, the little diversity of the Cuban market, the piracy of software and the unauthorized copies to which the country has been forced due to the restrictions of the North American blockade, the little need in our economic system to value companies with a view to mergers, acquisitions or public offerings and, above all, due to the intrinsic complications of the subject.
This last aspect is corroborated by the fact that the FRS 10 constitutes a sixth version after ED 47 of 1990, ED 52 of that same year, Discussion Paper of 1993, Working Paper of 1995 and FRED 12 of 1996 aimed at Goodwill and intangible assets study. As a general rule it replaced SSAP 22 of 1984; revised in 1989, which, in turn, was partially modified by FRS 6 of 1994 and FRS 7 of that same year.
For its part, the IASC had not developed regulations that dealt with intangible assets in a specific way until it issued IAS 38 in 1998. It did have regulations regarding some intangibles, such as IAS 9 of 1978 and revised in 1993 and IAS 22 of 1983 and revised in 1993 and 1998, which included the treatment of goodwill. Background to IAS 38 were the draft on intangible assets published in 1994, ED50 (1995) and ED60 (1997). In addition, IAS 38 comes to suppress IAS 9, considering that the latter is contemplated within the new standard, as internally generated assets.
Comparison of the Cuban standard with international standards.
In general, we can appreciate the differences of the Cuban norm in the following aspects regarding intangible assets:
Definition
The Cuban standard defines them as non-material goods, which is why it is less precise than the international ones that define them as non-financial goods, thus excluding bank accounts, for example.
On the other hand, it defines as a fundamental characteristic that they do not take a corporeal form and are only visible in the legal instrument that justifies the right to their usufruct, thus excluding physical custody through technical or intellectual knowledge (know how), recognized by these standards and that is precisely the category in which the software developed by the company itself is included.
Recognition and Valuation
In this sense, the Cuban standard is very similar to the others consulted, admitting both the assets purchased, as well as those acquired as part of a business and those generated internally. However, in the latter case, it does not impose conditions defining only that they be valued at their real production costs.
The FRS establishes that they can be recognized only if they have a clearly assignable market value, that is, if the item belongs to a homogeneous group of assets that are equivalent in all respects and if there is a market capable of establishing a value for those assets.. In this way, it eliminates the arbitrariness of valuing any own project as an intangible, although its quality and weight do not deserve it and that this account is used as a way to defer expenses to future periods.
In turn, IAS38 imposes as conditions that there is a probability that the future economic benefits corresponding to the asset will reach the company and that the cost of the asset can be measured reliably, confirming the condition that the software is capable of being sold.
Amortization
The Cuban standard and IAS38 establish their amortization using the straight line method as a general rule.
The FRS admits that it is not amortized in each year, but that its value is corrected in each period, making it more flexible.
In all cases, exceptional depreciation is admitted if it is determined that the intangible has lost its value.
Accounting principles for registering software as intangible
Valuation rules.
Acquired software. When the software is acquired by the company, the measurement must be made at its acquisition cost, including the tariffs or taxes that are levied on the acquisition and that are not recoverable by the company, and all disbursements directly attributable to the preparation of the software. active for its intended use.
Developed software. When the software is developed in-house, the initial measurement must be made at its production cost, that is, the sum of the disbursements incurred, from the moment the software meets the conditions for its recognition.
• Technically, it is possible to complete its production, so that it can be available for use or sale.
• Your intention to complete the software in question, to use or sell it. • Your ability to use or sell the software.
• The way in which it will generate probable economic benefits in the future.
• The availability of technical, financial or other resources to complete the development.
• Its ability to reliably evaluate the cost attributed to the software during its development. This requires a detailed accounting for each development project.
Amortization
Useful life. To establish the useful life of a software, frequent technological changes must be taken into account. In general, the following should be taken into account (IAS38):
• The expected use of the software by the company, as well as whether it could be efficiently managed by a different team;
• Typical product life cycles, as well as publicly available information on shelf life estimates, and similar software that are similarly used;
• The incidence of technical, technological or other obsolescence;
• The stability of the industry in which it will operate, as well as changes in market demand
Amortization Method. The amortization method used must reflect the pattern of consumption and use by the company of the economic benefits derived from the asset; if this cannot be determined with certainty, the linear method of amortization (straight line) should be adopted. The calculated amortization fee must be charged as an expense for the period.
It should be noted that both the period and the amortization method used must be reviewed at least at the end of each accounting year, in order to make the necessary modifications, in the period and in the amortization method, by the effects that occur in the amortization installments of the period in which they are detected and in the subsequent ones, which should be treated as changes in accounting estimates, as established in IAS38.
Software modification
Sometimes companies may need to incur significant costs to modify existing computer application systems, whether for technological or legal reasons.
Subsequent disbursements, incurred after the acquisition of an intangible asset or its termination by the company, should be treated as charges to the Income Statement of the period in which they are incurred, unless it is probable that Such disbursements allow computer programs to produce future economic benefits, in addition to those initially foreseen for the normal performance of the same, and that such disbursements can be reliably measured and attributed to the asset.
That is, regardless of whether these expenses are large or not, they will be considered as the expense of the period when the recovery or maintenance work has been carried out to allow the software to function as it was initially expected to do, after technological changes. or legal. Such was the case of the expenses associated with the change of millennium or the introduction of the Euro.
I appraise.
Another way to modify the book value of an intangible asset and without having to make cash outflows is through its appraisal; IAS38 in paragraph 64 says that the appraisal amount will be set by reference to an active market.
The appraisal should not be selective, that is, if a software has been appraised, all the others in its class should be appraised, unless there is no active market for said items.
It is worth remembering that an appraisal does not exactly imply an increase in the value of the asset, since it can also decrease.
Deterioration of the software
Definitions
• Recoverable amount of an asset: it is the greater between its net sale price and its use value.
• Depreciable amount of an asset: it is its historical cost, or the amount that replaces it in the financial statements, after deducting its residual value.
• Impairment loss: is the amount by which it exceeds the book value of an asset, at its recoverable amount.
IAS38 requires recognition of an impairment loss whenever the carrying amount of the asset in question is greater than its recoverable amount. This loss should be treated as a charge in the income statement if the assets in question are accounted for at their acquisition price or production cost, and as a decrease in the revaluation surplus accounts if the asset is accounted for by its revaluation.
The company must assess, on each balance sheet closing date, whether there is any indication of impairment of its assets. If any indication is detected, the company must estimate the recoverable value of the asset in question.
The concept of relative importance has application when determining whether it is necessary to estimate the recoverable amount of an asset.
If there is any indication that an asset may have impaired its value, the recoverable amount thereof must be estimated for the individually considered asset.
Accounting record
When a software is acquired, it is recorded as Intangible Fixed Assets against Cash in Bank (if paid) or against Donations Received (if it is a donation)
In the latter case, the value is recorded by appraisal of experts. Such assessment must be based on the study of the sales market and on the comparison of the quality of the product, taking as references the remaining ones on the market.
If the software is developed by the company, applying the principle of prudence, the disbursements of the investigation phase should be recognized as expenses of the period in which they are incurred, because in that phase the company cannot demonstrate that an intangible asset exists. some that may generate benefits in the future. Once the software product meets the requirements outlined in the standards, all disbursements made during development are recorded, which are part of the cost of the asset and will be recognized until the moment in which the development process of the software is completed. software. In this case, the disbursements are recorded as Deferred Expenses and when the software is completed, this balance is transferred to the Intangible Fixed Assets account.Amortization will be recorded in the corresponding expense account against the Amortization of Intangibles account. The accounting treatment that may be derived from expenditures after the initial cost due to the modifications of the programs depends on how the disbursements are considered: as expenses or capitalizable costs.
When an appraisal is carried out, if the book value increases, the increase must be taken to a surplus account for an appraisal within net worth. However, the increase must be recognized as income for the period to the extent that the reversal of a decrease in the value of the same asset is expressed, which was previously recognized as a loss.
If the book value is reduced, the decrease should be recognized as a loss for the period. However, the decrease must be directly charged against any previously recorded appraisal surplus in relation to the same asset, as long as such decrease does not exceed the balance of the appraisal surplus account.
When an intangible asset has been appraised, the accumulated amortization may be adjusted proportionally based on the change experienced by the gross book value before amortization of the asset, so that the final book value for the intangible asset, after the appraisal, is equal at the revalued amount that you want to get. The standard also accepts that the amortization for compensation with the gross book value of the asset is eliminated, so that the resulting net balance is valued up to the corresponding amount.
Exposition
Intangible assets appear in the Statement of Financial Position as the last group of assets. They are presented ordering by their useful life or the usufruct period of each asset.
Conclusions
Undoubtedly, the first conclusion that we must reach is the inherent difficulty of such types of assets, which carry very important doses of subjectivity, associated with the problem of valuation, an aspect that is crucial but not definitively addressed by the various regulations. Proof of this is the continuous revision to which such criteria are subjected by the regulations, with continuous changes of criteria that take and take back what has been abandoned and taken into consideration again and again. This effect is undoubtedly associated with the progress of companies and, therefore, that of the economy in general.
Save this general issue, not addressed, specifically in the regulations, we can establish the following particular conclusions:
1. In relation to the concept of intangible, it seems clear that the following requirements are met:
• Lack of physical substance.
• Identifiability.
• Control.
• Contribution to future income.
The last three are not clearly specified in Cuban regulations.
2. In relation to recognition and valuation, it is worth highlighting the difference established between assets acquired and generated internally, and the difference in valuation criteria, considerably more difficult in the second case, without being able to say that there is a defined and homogeneous criterion in this regard. Particularly undefined are the market value criteria and, above all, those of general acceptance.
3. The amortization criteria are highly influenced by the interests that prevail at all times in the companies, as clearly reflected by the FRS, where great flexibility is observed when establishing the criteria for each company. The Cuban Standard and the IASC practically coincide in the criteria when establishing the useful life and amortization period of these assets, although the former is more rigid due to the legal regulations themselves.
4. In Cuba there is no culture of registering software as an asset and the rules are not clear enough in this regard. This is cause and effect while there is no strong legal protection for the software product.
Bibliography
(Aramburo, 2001) Aramburo, Jorge. "Software Industry: opportunity for Colombia". http: // www. idg.co
(ASC, 1990) ACCOUNTING STANDARD COMMITTE. Exposure Draft ED 52 "Accounting for intangible fixed assets". http: // www.asc.org
(DISAIC, 2002) DISAIC consultant. » Electronic Consultant for the Accountant and Auditor »
(IASC, 1998) INTERNATIONAL ACCOUNTING STANDARD COMMITTE. IAS 38 "Intangible Assets", Institute of Sworn Accounts Censors. http: // www.iasc.org. (ICAC, 1992) INSTITUTE OF ACCOUNTING AND AUDIT OF ACCOUNTS. Resolution of January 21. Valuation rules for intangible assets. http: // www.icac.org
(Linares, 2003) Linares Rivera, Marta Lilian. "Computerized accounting systems". http: // www.monografias.com
(OECD, 2003) Organization for Economic Co-operation and Development. "STI Working Paper 2003/6: Measuring Investment in Software". http: // oecd.org
(OECD, 2003a) Organization for Economic Co-operation and Development. "Organization for Economic Co-operation and Development". http: // oecd.org
(Sierra, 2001) Sierra fernández, M.: «Accounting treatment of intangible assets in the IASC and in the ASB»,
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