[Question] Website Amortisation

[Moriarty]

Hi All,

Anyone got any insights on the appropriate amortisation period for a website? I have company auditors telling me that it is a minimum of 10 years with annual impairment reviews. I agree with the impairment reviews but think that given the rapid changes in technology, the useful life should be no more than 5 years. It's an intangible asset and the accounting treatment falls under IAS38 which gives no specific guidance on websites but there is a SIC - SIC32 - which deals with internally developed websites and that recommends that the useful life should be as short as possible. I can't think why there would be a different accounting treatment for internally and externally developed websites.

Any thoughts welcome.

Thanks,

Moriarty

[Andromeda]

Hi Moriarty

Are you talking about the domain, or the actual website?

I'll assume the actual website. In that case I would certainly agree with you. I think the reference your auditors made to 10 years is a maximum, not a minimum. I would probably reduce it even from 5 to perhaps 3.

There are other matters that can be relevant; for example the website of a franchised business, where the useful life arguably is matched to that of the franchise agreement.

Impairment should not be a correction of a too long useful life...

If it were internally developed and is not the only and direct source of revenue, I personally would expense it in it's entirety.

[Andromeda]

This analysis on SAICA's site is also helpful:

http://www.saica.co.za/faqs/showAnswer.asp?FaqQuestionId=588&FaqSectionId=8&FaqSubSectionId=34

[SilverNodashi]

That's the first time I hear someone, at least in South Africa, ask that.
So, what is the amortization on, say, pamphlets / banners / or even a billboard?

[Moriarty]

Thanks for both your posts, Andromeda.

It is the actual website for an NPO and will solicit donations from the general public. Internal and external work commenced on the project late in the last financial year (y/e 31/03/16) and expenditure was split between research and development, research expenditure was expensed and development expenditure capitalised to Intangible Assets. It has been a long process and development expenditure will continue through 31/03/17 with an estimated final spend of circa R200k. The existing website was tweaked to solicit donations and has been successful beyond all expectations so there is clearly a 'future economic benefit' in the website. The auditors were verbally adamant on a 10 year useful life but now that I re-read the management point, I see that they do say a maximum of 10 years. A foundation grant was received for the full cost of the website and this was rolled over into the new financial year and I expect will be rolled again into the 2017/18 year. My preference would be to expense all the costs but will accept a 3 or 5 year useful life. The company has PBO status from the TEU so there are no tax implications. A new audit firm has been engaged and it will be interesting to see their interpretation in the coming months.

Thanks again!

[Andromeda]

Glad you have made progress. Yes, I too would be interested to hear their opinion.

SilverNodashi, South Africa applies the same international reporting and accounting standards as most countries.

The matters you raise are simply advertising.