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/ Ask the Attorney / Accounting of IT Developments

Accounting of IT Developments

2020. 08. 26. 09:42 No Comments komcsi

Nowadays, the use of opportunities offered by information technology is an important area of development for businesses. Well-defined business decisions in this area, resulting in the modernisation of activities, have a positive effect not only on operation but also on the commercial value of the company. It is no coincidence that highly favourable tender opportunities are available in this area. 

IT developments, however, also raise accounting and settlement issues that do not necessarily lead to disadvantages under tax laws if they are lawfully resolved.

Based on experience, software development companies routinely offer so-called integrated corporate governance systems, the actual implementation of which, however, may vary for each company. It is, therefore, essential to accurately define the scope and time frame of expected performance in the contract concluded with the developer company.

A distinction should be made, namely, between purchasing a ready software or only its usage / licence fee until the end of the so-called operating period. The customer may choose a unique software / the development of software for a complete—or partial—corporate governance system, where the expected result must be precisely defined in a contract for services. 

Usually, all elements of developing corporate governance systems are considered to form one unit. Developments commonly consist of corporate CRM (Customer Relationship Management), human resources and payroll, sales, procurement, logistics, workflow control, accounting–finance, electronic document management, and knowledge management, etc.

When accounting, differences resulting from the customer company’s hardware capacity should be considered. It is possible, namely, that only some of the modules can be installed on the company’s computers, while others require rented cloud-based storage—possibly provided by the developer firm. Accounting of such rental, however, is not identical to that of a licence lease.

Pursuant to Section 25(1) of the Accounting Act, non-material assets (pecuniary rights, except for pecuniary rights related to real property; intellectual property; goodwill), advances for intangible assets, and the value adjustment of intangible assets must be stated in the balance sheet among intangible assets.  

 Section 25(6) stipulates that rights not related to real property should be stated among intangible assets as pecuniary rights. These include, in particular, lease rights, usage rights, asset management rights, intellectual property licences, licences, concessions, game rights, and other rights not related to real property.

Based on the above, it is, therefore, essential to individually assess the accounting of such developments and to set out all related circumstances in the underlying contract.

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