5.7.1 Future Economic benefit
Future economic benefit is a necessary condition for the capitalisation of ICT product and service in our research study. Even though, justifying this condition alone won’t allow for the capitalisation of ICT product and service, it is good to know how the organisation asserts this capitalisation criterion. Three participants have provides extra information when they chose to answer “easy” to justify the future economic benefit for different categories of ICT product and service. Base on their responds, the future economic benefit of ICT asset can be justify in the following situation:
- It easy to perceive the benefit that can be related to the increase of cash inflow to the organisation or the reduction of the cash of the outflow from the organisation.
- There is the acknowledgement of the investment and the benefit throughout the management team in advance of the investment.
For the participants, it is easy to justify the benefit of Computer Hardware, Telecommunication Equipment and Cable, and Computer Software that are acquired with one purchase transaction. For Computer Hardware and Telecommunication Equipment, the justification for the future economic benefit become difficult for the subsequent expenditure to the existing asset, especially for the small expenditure such as the replacement parts or maintenance. For software, the additional subsequent expenditure for customizing or adding additional modules to the existing software asset is also difficult to be justified for its future economic benefit. For
computer service, the participants are unsure if the additional subsequent expenditure could bring additional benefits that can be considered as additional asset.
5.7.2 Identifiability
Identifiability is another capitalisation criteria suggested in the accounting standards and literatures as the characteristic of the asset. The result of our analysis shows that justifying this criterion is necessary, but no sufficient, to explain the frequent capitalisation of ICT product and service. Based on the information given by the participants, to assert the identifiability of an asset, its value must be definable.
As indicated by the respondents, the value of asset is easier to be defined when it is purchased by the organisation. ICT product and service included in Computer Hardware, Computer software and Telecommunication Equipment and Cable is not hard to justify for its identifiability. Normally, for Computer Hardware and Telecommunication Equipment and Cable, the organisation uses the tax invoice as the reference of its value. The tangible nature of these items enhances the ease to justify for its identifiability. For Computer Software, if tax invoice is not available, the amount of payment to the software license is considered as the value of asset.
In special circumstance, the organisation uses the fair value method to define the value of asset. When the cost of the ICT asset is not available at the time of acquisition, the organisation needs to identify the asset value in an available market.
A participant has indicated that his organisation need to assess the value of an item in the accessible market, when the item is acquired from donation and the tax invoice is not available.
There are circumstances when the identifiability of asset is difficult to justify for ICT product and service. It is difficult when the items are acquired in bundle or with more
than one purchase transactions, for example software development. For ICT product and service that are purchased in bundle, it is difficult to justify the identifiability of each item when the price of each item is not separated by the supplier in the tax invoice. The participants in our study have a problem to justify the identifiability of the software asset when it is purchased or already installed in bundle with Computer Hardware (Desktop).
For Computer Service, identifiability is difficult to be justified, and the professional expertise is required. Base on (ABS,2006), the software development is included in computer service category. The participants indicated that it is required strong experience to capitalise the asset arising from the expenditure in this ICT category. It is difficult to make a clear judgement if the service could bring an identifiable asset or additional identifiable asset to the organisation.
The difficulty of justifying the identifiability of asset is also related to the problem in the cost allocation. Quoted from a participant, “The nature of this expenditure is complicated. For example, some equipment will be used in different projects after one project finish. The allocation of cost is very hard. If the allocation of cost is done in advance then it is easy identify the cost of asset”. In term of project, the cost allocation to the asset should be done in advance. Therefore, the separate value of each identifiable asset can be defined easier, and the identifiability of asset can be justified accordingly.
5.7.3 Existence
Existence is another criterion suggested by the accounting standards and found as a necessary condition for the frequent capitalisation of ICT asset. The existence can be easily justified when the asset can be seen physically in use. It is easy to justify the
existence of Computer Hardware and Telecommunication Equipment and Cables.
The participants indicated that asset list and asset tag are being used to help asserting the existence of ICT asset. The asset list includes the information about the ICT asset in the organisation. The asset list includes the name of the asset, location, value and the asset tag. The asset tag is a unique identification that is attached to each existing asset. For software asset, the existence of Compact Disc and contractual agreement, licence are the proof of ownership and can be used to prove the asset existence.
5.7.4 Controllability
The organisation has to be able to prove its controllability over the assets that are reported on its financial statements. This is a necessary condition that explains the frequent capitalisation of ICT asset in our analysis. It is also a requirement stated in the accounting standards. Base on the expert indication, supporting documents is important to justify the controllability of an asset. The supporting documents that represent the proof of ownership include tax invoice, official receipts, are used to prove the organisational controllability over the ICT asset in Computer Hardware and Telecommunication Equipment and cable. In addition, most of the experts indicated that the asset list and the asset tag were being used to control the asset.
Base on the discussion in literature review, the controllability is not only about controlling the asset, but also controlling over the future economic benefit flowing from the asset. For the asset arising from the expenditure of the ICT product and service in Computer Software and Computer Service, the contractual agreement plays an important role to allow organisation having control over the benefit flowing from the asset. For instance, the organisation can lay out the conditions in the contractual agreement for the service provider to provide the ongoing training to
staffs. The ongoing training would enable the organisation capability to keep the benefit flowing from the asset.
5.7.5 Reliability measurement
The accounting standards recommend that the asset can be capitalised if its value can be measured reliably. The participant has indicated that it is easy to justify the reliability of the measurement for the cost of asset in Computer Hardware, Computer Software, and Telecommunication equipment and communication cable. For these categories of ICT product and service, the organisations use the supporting documents including tax invoice and contractual agreements as the tool measure the cost.
Base on the participant’s experience, the difficulties of measuring the asset cost occurs when the fair value of the asset cannot be defined. Indicated by one of our participants, this problem can occur for the item that is too new and high tech to the region that the organisation is operating.
The difficulties of measuring the asset value also incurs in software development.
Participant is difficult to decide if certain expenditure such as installation, consultancy and the other subsequent cost shall be included into value of capitalised asset. The capitalisation of the expenditure items described in Computer Software and Computer Service categories of ICT product and service are difficult for the experts.