Website Development Costs (SIC-32)
Definition
Website development costs are the amounts a business incurs building and launching its own web site. Under IFRS, SIC-32 (“Intangible Assets — Web Site Costs”) applies IAS 38 to the activity by splitting a project into stages: planning, application and infrastructure development, graphical design, content development, and the operating stage that follows launch. Planning-stage costs are treated as research expenditure and written off as incurred, consistent with IAS 38.54. Application, infrastructure and graphical-design costs may be carried forward where the development-phase conditions in IAS 38.57 are demonstrated — which for a web site turns on showing probable future economic benefits, a test that is straightforward for a transactional site and demanding for one that only promotes the entity. Content developed to advertise or promote the entity's own products is expensed. Costs incurred after launch, in the operating stage, are subsequent expenditure under IAS 38.20. Worked example: a business spends £120,000 on a new site, of which £15,000 is scoping, £70,000 is build and integration with its order system, £20,000 is design, and £15,000 is writing marketing copy. The scoping and the copy are period costs; the build, integration and design form the population tested against the recognition conditions. Jurisdiction contrast: US GAAP addresses web site costs through ASC 350-40 and related guidance, using a stage-based model that often reaches similar answers by a different route. The judgement management makes is whether the site earns money in a way that can be evidenced, or whether it advertises.
Taking a defensible position
The position
SIC-32 applies IAS 38 to web site costs by stage. Planning-stage expenditure is treated as research and written off as incurred. Application, infrastructure and graphical-design expenditure may be carried forward only where the development-phase conditions in IAS 38.57 are demonstrated, including probable future economic benefits. Content created to advertise or promote the entity’s own products is expensed, and post-launch expenditure falls under IAS 38.20.
A defensible posture
Where a site generates revenue directly — orders taken, subscriptions sold, bookings made — the future-benefit condition can usually be demonstrated, and carrying the build forward is the position the interpretation contemplates. A management team that splits a web site project by stage before work starts, and has supplier invoices billed against those stages, is in a far stronger position than one presenting a single agency invoice after launch.
Evidence to hold
- A stage-based project plan agreed before build, distinguishing planning, application and infrastructure, design, and content.
- Supplier invoices and internal timesheets billed to those stages rather than to the project as a whole.
- Evidence of the revenue mechanism — order flow, subscription sign-ups or bookings — supporting the future-benefit condition.
- A separate record of promotional content spend, which is expensed.
- A documented launch date, so operating-stage costs are identifiable.
The challenge you may face
Expect a reviewer to ask what the site actually does. A promotional site with capitalised build costs draws the sharpest questions, because the future-benefit condition has to be demonstrated rather than assumed. Also anticipate probes on whether a single agency invoice was split on a reasonable basis, whether copywriting was swept into the capitalised total, and how costs incurred after launch were treated.
Complementary Terms
Concepts that frequently appear alongside Website Development Costs (SIC-32) in practice.
The International Accounting Standard governing the recognition, measurement, and disclosure of intangible assets. IAS 38 requires that an intangible asset be identifiable, controlled by the entity, and expected to generate future economic benefits.
Development costs are the expenditure incurred applying research findings to a plan or design for a new or substantially improved product, service, process or system before it enters commercial production or use. Under IAS 38 (IFRS — the default framework for UK groups reporting under adopted IFRS), the standard divides the work into two phases and treats them differently.
The accounting practice of recording an intangible expenditure as an asset on the balance sheet rather than expensing it immediately through the income statement. Under IAS 38, development costs must be capitalised once the six criteria in IAS 38.57 are met, whereas research costs must always be expensed.
Internal-use software is software a business acquires or develops for its own operations rather than to sell or licence. Under US GAAP, ASC 350-40 sets a stage-based model.
The effect a brand has on how customers think and behave: their awareness of it, the associations and perceived quality they attach to it, and their loyalty to it (the Aaker and Keller models). Brand equity is a consumer and marketing concept, measured with surveys, tracking studies, retention and price premium data, and it influences pricing power, customer loyalty and market share.
Internally generated brands are brand assets a business builds itself over time rather than acquiring them in a transaction. IAS 38.63 (IFRS) names a specific family — internally generated brands, mastheads, publishing titles and customer lists, together with items similar in substance — and does not permit their recognition as intangible assets.
Subsequent expenditure on an intangible asset is spend incurred after the asset has been recognised — renewing and maintaining a registered right, defending it, upgrading software already in use, or continuing to invest in an asset already carried on the balance sheet. Under IAS 38.20 (IFRS), subsequent expenditure is normally recognised in profit or loss as incurred.
An intangible asset created within the business (R&D output, brand, customer relationships, organisational know-how) rather than acquired through a transaction. IAS 38 conservatism rules make these difficult to capitalise on statutory books — six development-cost capitalisation criteria must all be met.
Further Reading
Round Ready — preparing for a Series A or B
What investors expect to see behind capitalised digital investment.
Read more →AI and IAS 38: When Can You Capitalise AI Development Costs?
IAS 38 sets six criteria for capitalising development costs, but applying them to AI projects is fraught with ambiguity. This article maps each criterion to AI development realities and provides practical guidance for CFOs and accountants navigating the recognition question.
Read more →Related FAQ
How do you value a brand and what factors drive brand worth?
Brand value is driven by pricing premium, customer loyalty, and market position. Valuation methods include comparable company analysis, price premium multipliers, and income approach based on branded revenue.
Read full answer →How much of a company's value is intangible?
For S&P 500 companies, over 90% of market capitalisation is attributed to intangible assets. For typical SMEs, the proportion ranges from 50-85% depending on the industry and business model.
Read full answer →How do you measure brand value?
Brand value is most commonly measured using the Relief from Royalty method, which estimates what the business would pay to licence its brand if it didn't own it, discounted to present value.
Read full answer →Put this knowledge to work
Use Opagio's free tools to measure and grow the intangible assets that drive your business value.