Technology Transformations and Financial Reporting: Reflecting the Value Behind Investments
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September 29, 2026
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Organisations are investing heavily in cloud computing, enterprise platforms and AI. Across many sectors, we are seeing technology programmes become major capital allocation decisions for boards and management teams.
Yet while significant attention is devoted to selecting technology platforms and delivering business outcomes, far less focus is given to how these investments are accounted for and how value and returns on investment are communicated. For companies preparing their financial statements in accordance with International Financial Reporting Standards(“IFRS”), substantial portions of technology spend can end up expensed in the period it was incurred - even if the technology is expected to generate value over many years. The result is a disconnect between the economics of technology investment and the way organisational performance is reported.
This disconnect matters. It can obscure the scale of strategic investment, distort period-on-period performance and make it harder for stakeholders to distinguish between operating expenses and investment in future capability. For CFOs, it also creates the challenge of explaining why significant expenditure has reduced earnings despite being directed toward long-term value creation.
CFOs and finance teams need to ensure that financial reporting accurately reflects the economic substance of the assets being created and the benefits they are expected to generate. This allows stakeholders and readers to make better decisions from better information.
As technology investments become larger and more complex, organisations that understand and establish robust accounting frameworks early are better positioned to create accurate business cases, avoid surprises, support audit scrutiny and provide stakeholders with a clearer view of performance.
Technology Investment Is Outpacing Accounting Guidance
The key international accounting standard applying to software and technology investments - IAS 38 Intangible Assets (AASB 138 in Australia) - was developed in an era dominated by on-premise software and more clearly identifiable IP / assets.
Today’s technology landscape is very different. Organisations increasingly operate through SaaS platforms, cloud ecosystems, AI-enabled processes and hybrid arrangements involving multiple vendors. Determining whether a particular cost gives rise to a controlled intangible asset is often more complex than it once was.
The 2021 IFRS Interpretations Committee (“IFRIC”) agenda decision on configuration and customisation costs in cloud computing arrangements provided important clarification.1 In many SaaS arrangements, implementation activities performed by a vendor do not create an asset controlled by the organisation and therefore those costs must be expensed. However, significant costs are often incurred by the organisation’s internal teams readying their IT environment for the SaaS arrangement. In some instances, these costs are associated with separately identifiable assets that the organisation controls, which may still qualify for capitalisation.
AI investments introduce additional complexity and judgement. The International Accounting Standards Board (“IASB”), recognising this challenge, is currently researching whether IAS 38 remains fit for purpose in an increasingly intangible economy.2 While any changes remain some way off, the project reflects a growing debate around whether financial statements adequately capture the assets driving modern enterprise value. Until then, much of the solution lies in applying the accounting standards well, rather than changing them, through earlier planning and better disclosures.
For now, the fundamental accounting question remains unchanged: has the organisation created or enhanced an asset that it controls and from which it expects future benefits? Answering this question requires close collaboration between an organisation’s finance and technology teams. This collaboration and upfront planning is the foundation for the practical steps discussed below.
Three Common Pitfalls With Technology Transformation And How To Overcome Them
Treating Transformation Programmes as a Single Project
One of the most common issues for organisations is accounting for a large transformation programme as a single initiative. We see many organisations establish, allocate and monitor costs at a project level, rather than identifying the specific assets being created within it.
Capitalisation under IAS 38 requires the identification of discrete intangible assets3. Depending on the circumstances, these may include proprietary software components, custom-developed applications, independently functioning application programming interfaces (“APIs”), middleware, or enhancements to existing internally controlled systems.
Organisations that identify potential assets early in the programme lifecycle are generally better positioned to apply the accounting standards consistently and support their conclusions during audit.
Underestimating the Importance of Control and Future Benefits
For cloud and AI investments, demonstrating control and future economic benefit can be more challenging than identifying the underlying technology.
Contractual arrangements are particularly important. IP ownership, rights to modify software, exclusivity provisions, access to source code and ongoing usage rights may all influence whether an organisation controls an asset for accounting purposes.
Equally important is demonstrating future economic benefit. Technology business cases frequently rely on productivity improvements, operational efficiencies or enhanced decision-making capabilities. They are in effect ‘licences to operate’ not true transformation initiatives. While these benefits may be real, organisations need to be able to articulate how they are expected to arise and how success will be measured.
This is particularly relevant for AI investments where benefits may emerge over time and are initially difficult to isolate from broader business improvements. Robust business cases, measurable performance indicators and ongoing monitoring can help support both capitalisation decisions and subsequent impairment assessments.
Lacking the Governance Infrastructure to Support Conclusions
Even where a strong technical accounting position exists, organisations can struggle to support it operationally. Often, costs are allocated retrospectively instead of establishing a proper process and governance infrastructure at the outset of a project.
Transformation programmes are often managed through broad project budgets that combine software development, implementation services, training, change management, data migration and operational support activities. Without sufficient granularity, it can be difficult to distinguish capitalisable costs from costs that must be expensed.
For internal AI and software development initiatives, organisations should also demonstrate when activities moved from research into development, how costs were allocated, and how useful lives and impairment considerations were assessed.
The ability to support capitalisation decisions is rarely achieved through retrospective analysis. They are usually the result of governance structures, including documentation standards and cost-tracking mechanisms established at the outset of a programme.
Practical Lessons From Technology Transformation Programmes
In our experience, we recommend organisations adopt four practical pillars at the programme outset:
- Identify assets and accounting implications early. Finance teams engage with programme leaders and technology teams before significant costs are incurred. They collaborate to assess capitalisation opportunities by identifying assets and learning to talk the same language. There is a sharing of knowledge and understanding.
- Implement asset-level cost tracking. Costs are monitored at a level that enables a meaningful allocation process between the identified assets and operational expenditures. For costs requiring an estimation methodology, there is a policy and process supporting assumptions.
- Build documentation and monitoring. Determine the source, evidence and nature of costs to then implement controls and governance to support the cost allocations and audit evidence process.
- Reassess and cross-check assets. Don’t set and forget – reassess allocations as the project progresses, asking: ‘Do the assets and values make commercial sense?’ in the context of the broader program.
Beyond Accounting
As organisations continue to increase investment in cloud technologies and AI, the accounting treatment of those investments will attract greater attention from boards, investors, lenders, auditors and regulators.
The objective should not be aggressive capitalisation, nor a default assumption that all technology expenditure must be expensed. Rather, it should be the consistent application of accounting standards to ensure financial statements faithfully represent the assets being created and the benefits they are expected to generate.
However, the accounting outcome is only part of the story. For many cloud and AI investments, the value created may not be fully reflected in the financial statements. The best CFOs will bridge the gap between accounting outcomes and business performance by clearly articulating to key stakeholders what has been invested, how value is expected to be realised and how success will be measured.
Organisations that establish robust governance, documentation and cost-tracking processes are more likely to achieve accounting outcomes that reflect the underlying economics of their technology investments. They are also better positioned to communicate a credible investment narrative to stakeholders. As technology spending continues to accelerate, the challenge extends beyond determining what can be capitalised to demonstrating these investments are creating sustainable value.
The views expressed herein are those of the author(s) and not necessarily the views of FTI Consulting, Inc., its management, its subsidiaries, its affiliates or its other professionals. FTI Consulting, Inc., including its subsidiaries and affiliates, is a consulting firm and is not a certified public accounting firm or a law firm. FTI Consulting is an independent global business advisory firm dedicated to helping organisations manage change, mitigate risk and resolve disputes: financial, legal, operational, political and regulatory, reputational and transactional. FTI Consulting professionals, located in all major business centres throughout the world, work closely with clients to anticipate, illuminate and overcome complex business challenges and opportunities. ©2026 FTI Consulting, Inc. All rights reserved. fticonsulting.com
Footnotes:
1: International Financial Reporting Standards Interpretations Committee (IFRIC), Configuration or Customisation Costs in a Cloud Computing Arrangement (IAS 38), IFRIC Update, Agenda 12A (Apr. 2021).
2: International Financial Reporting Standards Foundation, “IASB launches comprehensive review of accounting for intangibles” (23 Apr. 2024), https://www.ifrs.org/news-and-events/news/2024/04/iasb-launches-comprehensive-review-accounting-for-intangibles/
The views expressed herein are those of the author(s) and not necessarily the views of FTI Consulting, Inc., its management, its subsidiaries, its affiliates, or its other professionals.
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September 29, 2026
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