Transform Your IT Cost Structure

Author(s): Travis Hillpot

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Entities using EBITDA as a key financial indicator can benefit from capitalizing cloud computing agreements. Capitalizing allows the asset to be on the balance sheet, positively impacting EBITDA, as opposed to expensing, which negatively impacts EBITDA. There are no definitive rulings on the treatment of cloud purchases. This document attempts to give a high-level overview of the guidance provided by IAS 38 and IFRS 16 and when and how to use them in creating an internal policy for the financial treatment of cloud purchases. Factors for capitalization include control, measurability, expected economic benefits, useful life, and legal/regulatory requirements. Consulting accounting professionals is advised.

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