Augmented Reality Advertising Accounting: Recognition and
Measurement of Investments in AR Marketing Campaigns
Introduction
Augmented reality (AR) is becoming an increasingly popular form of digital advertising and
marketing. Major brands and companies are investing heavily in AR technologies to engage
consumers in innovative new ways. However, accounting for investments in AR marketing
campaigns presents novel challenges due to the uniqueness of the technology and business
models involved. This paper will examine the key accounting issues surrounding the
recognition and measurement of investments in AR advertising from both an International
Financial Reporting Standards (IFRS) and Generally Accepted Accounting Principles
(GAAP) perspective.
What is Augmented Reality Advertising?
Augmented reality uses a combination of software and hardware like smartphones, tablets,
smart glasses etc. to overlay digital objects and information onto the real physical world in
real-time. In the context of advertising and marketing, AR enables brands to bring their
products and messaging to life in interactive and immersive new dimensions. Common
examples of AR advertising include:
- AR filters on social media platforms like Snapchat, Instagram and Facebook that place
virtual objects and assets into the camera view for users to interact with. Brands have created
AR lenses and filters promoting everything from movies to food products.
- AR mobile apps that allow users to point their phone camera at the real world and see
virtual 3D models of products they can interact with. Furniture brands allow people to
“place” sofas and beds in their living rooms for example.
- AR apps integrated with ecommerce sites that power virtual “try-on” experiences for
clothing, accessories, cosmetics and more using augmented cameras. Users can preview how
items will look before purchase.
- AR incorporated within live-streamed and prerecorded video content across platforms.
Viewers see brand messaging and experiences augmenting the real footage.
- AR activation zones at retail pop-ups, trade shows and events that unlock unique immersive
experiences for attendees through their mobile devices.
The goal of AR advertising is to create highly engaging and shareable brand interactions that
drive awareness, consideration and purchase. It aims to take advertising to a new interactive
dimension beyond static images and videos.
Accounting for AR Campaign Investments
From an accounting perspective, investments in AR marketing campaigns present novel
challenges due to the lack of definitive guidance and precedence in existing frameworks.
Some of the key issues that must be addressed include:
- Identifying and defining the nature of costs incurred - Are they marketing costs,
development costs, intangible asset costs?
- Timing of recognition - Should costs be expensed as incurred or capitalized for future
periods?
- Measurement of value - How should the “value” of AR campaigns and their potential future
benefits be assessed and represented on the balance sheet?
- Impairment assessment - At what point should the value of capitalized AR investments be
written down if expected benefits fail to materialize?
- amortization period - Over what time period should capitalized costs be allocated (if at all)?
AR technologies and user preferences evolve rapidly.
These challenges stem from the fact that AR represents an emerging technology, business
models are still evolving and there is uncertainty around user adoption and ROI
quantification. Both IFRS and GAAP provide some relevant guidance but lack definitive
rules.
IFRS Perspective
Under International Accounting Standard (IAS) 38 - Intangible Assets, costs associated with
AR campaigns could potentially be classified and accounted for as:
- Research costs - Expensed as incurred as they do not meet the definition of an intangible
asset. Includes general investigation and concept development activities.
- Development costs - Potentially capitalized if they meet specific criteria. Must demonstrate
technical feasibility to completion, intent and ability to use/sell, expenditures identifiable and
reliably measured. Capitalized as an intangible development asset.
- Marketing costs - Normally expensed unless they are directly attributable to
advertising/promoting intangible assets that meet the definition and recognition criteria of
IAS 38 before they are available for use.
However, as AR technology is still emerging, it may be difficult to clearly distinguish
research from development activities or demonstrate an intangible asset has been created per
IAS 38 criteria. Significant management judgment is required.
IFRS provides no definitive guidance around impairment testing or amortization periods for
intangible assets either. Companies would have to use reasonable estimates and assumptions
considering AR's unique characteristics and rapid evolution. Overall, IFRS principles leave
room for interpretation and lack definitive rules for AR investments.
GAAP Perspective
Similarly under US GAAP, the accounting treatment of AR campaign costs under ASC 350-
40 (Internal-Use Software), ASC 720-15 (Advertising Costs) or ASC 985-20 (Costs of
Software to be Sold, Leased or Marketed) would depend on which definition and
capitalization criteria the costs meet, if any.
Some key distinctions from IFRS include:
- Internal use software costs can be capitalized only after completion of the "preliminary
project stage". For AR this may be difficult to define.
- Advertising costs are expensed unless they meet requirements of ASC 720-35 to be
capitalized as "direct-response advertising". Requires demonstrated ability to bring future
economic benefits.
- Software costs capitalized per ASC 985-20 have more definitive future economic benefits
requirements vs. IAS 38. Still challenging to apply to AR due to uncertainties.
- Amortization guidance suggests useful lives not exceeding 3 years which likely do not
reflect AR investment lifecycles and rapid evolution.
Overall, GAAP is more rules-based than IFRS but similarly lacks definitive principles for
recognition and measurement of AR costs given its unique nature and business models.
Significant judgment is still required by management. Both frameworks provide flexibility
that can impact financial reporting.
Proposed Accounting Model for AR Investments
Given the lack of explicit guidance in IFRS and GAAP, this paper proposes the following
principles-based approach for accounting for investments in AR marketing campaigns:
Recognition:
- Early stage "research" costs which do not meet the definition of an asset should be expensed
- All other material costs which are directly attributable to developing identifiable AR
technical platforms, content, activations etc. that are controlled by the entity should be
capitalized as intangible development assets.
- Careful consideration of what constitutes "development" vs. "marketing" required given
blurred lines for AR. Non-marketing costs should meet IAS 38/GAAP capitalization criteria.
Measurement:
- Fair value (value in use) of capitalized intangible assets should be estimated using
discounted projected cash flows from AR campaigns factoring in technological/user behavior
risks given rapid evolution.
- Impairment testing required annually or if indicators exist. Write down value if exceeds
recoverable amount estimated using similar fair value approach.
Amortization:
- Straight-line over estimated useful economic life of 3-5 years max reflecting rapid AR
changes. Regular reviews of useful life required.
- Accelerated amortization if usage/outcomes fall below expectations to timely write down
value.
Disclosure:
- Robust disclosure of accounting policies for AR intangibles, judgments, impairment
considerations and sensitivities required.
This proposed model aims to balance principles of asset recognition and long-term benefits
while also accounting for AR's unique attributes and risks. It provides a structured yet
flexible framework for management to apply. Regular reviews are paramount given AR
dynamics.
Accounting Software Solutions for AR
As AR investments grow, dedicated accounting software solutions are emerging to help
streamline the implementation of the proposed model:
- Specialized AR project management software and workflow tools integrate time tracking,
expense categorization and capitalization monitoring for AR campaigns across departments
and vendors. Automate data collection for subsequent financial reporting.
- Valuation modules help formally estimate the fair value of AR intangible assets through
discounted cash flow models capturing unique technological and revenue assumptions. Run
sensitivity analyses on AR forecasts and risks.
- Impairment modules trigger quantitative impairment tests annually or if indicators exist and
automatically calculate recoverable amounts. Potential write downs are automatically
journaled.
- Advanced amortization modules allocate the cost of AR intangible assets over their
estimated useful lives using straight-line or other methods as chosen by management.
- Dashboards and reports pull data from various modules to generate consolidated financial
statements, notes disclosures, and key operational metrics on AR investments tailored for
management and auditors.
The use of specialized accounting software can significantly enhance the consistency,
reliability and auditability of accounting for investments in AR while reducing manual
processes and judgement risks. Integration across AR technology and financial systems is key
to their effectiveness.
Conclusion
As AR advertising gains traction, recognizing and appropriately measuring related marketing
investments presents pressing challenges for financial reporting frameworks. While IFRS and
GAAP provide some overarching guidelines, they lack definitive principles specific to AR's
novel attributes and business models. This necessitates significant management judgement
and introduces reporting inconsistencies between entities.
This paper has proposed a high-level principles-based model for accounting for AR
investments encompassing recognition, measurement, impairment testing and amortization
considerations given technology and business evolution risks. It balances the need for
principles versus prescriptive rules. Robust disclosure is also emphasized.
Dedicated accounting software tools can efficiently operationalize such a model while
enhancing consistency, controls and auditability for AR campaign investments. As
technologies mature, frameworks may incorporate more definitive AR-specific guidance
informed by practices developed. Overall, navigating AR’s accounting requires specialized
knowledge and flexibility as new frontiers are explored.
Augmented reality (AR) is becoming an increasingly popular form of digital advertising and
marketing. Major brands and companies are investing heavily in AR technologies to engage
consumers in innovative new ways. However, accounting for investments in AR marketing
campaigns presents novel challenges due to the uniqueness of the technology and business
models involved. This paper will examine the key accounting issues surrounding the
recognition and measurement of investments in AR advertising from both an International
Financial Reporting Standards (IFRS) and Generally Accepted Accounting Principles
(GAAP) perspective.
What is Augmented Reality Advertising?
Augmented reality uses a combination of software and hardware like smartphones, tablets,
smart glasses etc. to overlay digital objects and information onto the real physical world in
real-time. In the context of advertising and marketing, AR enables brands to bring their
products and messaging to life in interactive and immersive new dimensions. Common
examples of AR advertising include:
- AR filters on social media platforms like Snapchat, Instagram and Facebook that place
virtual objects and assets into the camera view for users to interact with. Brands have created
AR lenses and filters promoting everything from movies to food products.
- AR mobile apps that allow users to point their phone camera at the real world and see
virtual 3D models of products they can interact with. Furniture brands allow people to
“place” sofas and beds in their living rooms for example.
- AR apps integrated with ecommerce sites that power virtual “try-on” experiences for
clothing, accessories, cosmetics and more using augmented cameras. Users can preview how
items will look before purchase.
- AR incorporated within live-streamed and prerecorded video content across platforms.
Viewers see brand messaging and experiences augmenting the real footage.
- AR activation zones at retail pop-ups, trade shows and events that unlock unique immersive
experiences for attendees through their mobile devices.
The goal of AR advertising is to create highly engaging and shareable brand interactions that
drive awareness, consideration and purchase. It aims to take advertising to a new interactive
dimension beyond static images and videos.
Accounting for AR Campaign Investments
From an accounting perspective, investments in AR marketing campaigns present novel
challenges due to the lack of definitive guidance and precedence in existing frameworks.
Some of the key issues that must be addressed include:
- Identifying and defining the nature of costs incurred - Are they marketing costs,
development costs, intangible asset costs?
- Timing of recognition - Should costs be expensed as incurred or capitalized for future
periods?
- Measurement of value - How should the “value” of AR campaigns and their potential future
benefits be assessed and represented on the balance sheet?
- Impairment assessment - At what point should the value of capitalized AR investments be
written down if expected benefits fail to materialize?
- amortization period - Over what time period should capitalized costs be allocated (if at all)?
AR technologies and user preferences evolve rapidly.
These challenges stem from the fact that AR represents an emerging technology, business
models are still evolving and there is uncertainty around user adoption and ROI
quantification. Both IFRS and GAAP provide some relevant guidance but lack definitive
rules.
IFRS Perspective
Under International Accounting Standard (IAS) 38 - Intangible Assets, costs associated with
AR campaigns could potentially be classified and accounted for as:
- Research costs - Expensed as incurred as they do not meet the definition of an intangible
asset. Includes general investigation and concept development activities.
- Development costs - Potentially capitalized if they meet specific criteria. Must demonstrate
technical feasibility to completion, intent and ability to use/sell, expenditures identifiable and
reliably measured. Capitalized as an intangible development asset.
- Marketing costs - Normally expensed unless they are directly attributable to
advertising/promoting intangible assets that meet the definition and recognition criteria of
IAS 38 before they are available for use.
However, as AR technology is still emerging, it may be difficult to clearly distinguish
research from development activities or demonstrate an intangible asset has been created per
IAS 38 criteria. Significant management judgment is required.
IFRS provides no definitive guidance around impairment testing or amortization periods for
intangible assets either. Companies would have to use reasonable estimates and assumptions
considering AR's unique characteristics and rapid evolution. Overall, IFRS principles leave
room for interpretation and lack definitive rules for AR investments.
GAAP Perspective
Similarly under US GAAP, the accounting treatment of AR campaign costs under ASC 350-
40 (Internal-Use Software), ASC 720-15 (Advertising Costs) or ASC 985-20 (Costs of
Software to be Sold, Leased or Marketed) would depend on which definition and
capitalization criteria the costs meet, if any.
Some key distinctions from IFRS include:
- Internal use software costs can be capitalized only after completion of the "preliminary
project stage". For AR this may be difficult to define.
- Advertising costs are expensed unless they meet requirements of ASC 720-35 to be
capitalized as "direct-response advertising". Requires demonstrated ability to bring future
economic benefits.
- Software costs capitalized per ASC 985-20 have more definitive future economic benefits
requirements vs. IAS 38. Still challenging to apply to AR due to uncertainties.
- Amortization guidance suggests useful lives not exceeding 3 years which likely do not
reflect AR investment lifecycles and rapid evolution.
Overall, GAAP is more rules-based than IFRS but similarly lacks definitive principles for
recognition and measurement of AR costs given its unique nature and business models.
Significant judgment is still required by management. Both frameworks provide flexibility
that can impact financial reporting.
Proposed Accounting Model for AR Investments
Given the lack of explicit guidance in IFRS and GAAP, this paper proposes the following
principles-based approach for accounting for investments in AR marketing campaigns:
Recognition:
- Early stage "research" costs which do not meet the definition of an asset should be expensed
- All other material costs which are directly attributable to developing identifiable AR
technical platforms, content, activations etc. that are controlled by the entity should be
capitalized as intangible development assets.
- Careful consideration of what constitutes "development" vs. "marketing" required given
blurred lines for AR. Non-marketing costs should meet IAS 38/GAAP capitalization criteria.
Measurement:
- Fair value (value in use) of capitalized intangible assets should be estimated using
discounted projected cash flows from AR campaigns factoring in technological/user behavior
risks given rapid evolution.
- Impairment testing required annually or if indicators exist. Write down value if exceeds
recoverable amount estimated using similar fair value approach.
Amortization:
- Straight-line over estimated useful economic life of 3-5 years max reflecting rapid AR
changes. Regular reviews of useful life required.
- Accelerated amortization if usage/outcomes fall below expectations to timely write down
value.
Disclosure:
- Robust disclosure of accounting policies for AR intangibles, judgments, impairment
considerations and sensitivities required.
This proposed model aims to balance principles of asset recognition and long-term benefits
while also accounting for AR's unique attributes and risks. It provides a structured yet
flexible framework for management to apply. Regular reviews are paramount given AR
dynamics.
Accounting Software Solutions for AR
As AR investments grow, dedicated accounting software solutions are emerging to help
streamline the implementation of the proposed model:
- Specialized AR project management software and workflow tools integrate time tracking,
expense categorization and capitalization monitoring for AR campaigns across departments
and vendors. Automate data collection for subsequent financial reporting.
- Valuation modules help formally estimate the fair value of AR intangible assets through
discounted cash flow models capturing unique technological and revenue assumptions. Run
sensitivity analyses on AR forecasts and risks.
- Impairment modules trigger quantitative impairment tests annually or if indicators exist and
automatically calculate recoverable amounts. Potential write downs are automatically
journaled.
- Advanced amortization modules allocate the cost of AR intangible assets over their
estimated useful lives using straight-line or other methods as chosen by management.
- Dashboards and reports pull data from various modules to generate consolidated financial
statements, notes disclosures, and key operational metrics on AR investments tailored for
management and auditors.
The use of specialized accounting software can significantly enhance the consistency,
reliability and auditability of accounting for investments in AR while reducing manual
processes and judgement risks. Integration across AR technology and financial systems is key
to their effectiveness.
Conclusion
As AR advertising gains traction, recognizing and appropriately measuring related marketing
investments presents pressing challenges for financial reporting frameworks. While IFRS and
GAAP provide some overarching guidelines, they lack definitive principles specific to AR's
novel attributes and business models. This necessitates significant management judgement
and introduces reporting inconsistencies between entities.
This paper has proposed a high-level principles-based model for accounting for AR
investments encompassing recognition, measurement, impairment testing and amortization
considerations given technology and business evolution risks. It balances the need for
principles versus prescriptive rules. Robust disclosure is also emphasized.
Dedicated accounting software tools can efficiently operationalize such a model while
enhancing consistency, controls and auditability for AR campaign investments. As
technologies mature, frameworks may incorporate more definitive AR-specific guidance
informed by practices developed. Overall, navigating AR’s accounting requires specialized
knowledge and flexibility as new frontiers are explored.
Augmented reality (AR) is becoming an increasingly popular form of digital advertising and
marketing. Major brands and companies are investing heavily in AR technologies to engage
consumers in innovative new ways. However, accounting for investments in AR marketing
campaigns presents novel challenges due to the uniqueness of the technology and business
models involved. This paper will examine the key accounting issues surrounding the
recognition and measurement of investments in AR advertising from both an International
Financial Reporting Standards (IFRS) and Generally Accepted Accounting Principles
(GAAP) perspective.
What is Augmented Reality Advertising?
Augmented reality uses a combination of software and hardware like smartphones, tablets,
smart glasses etc. to overlay digital objects and information onto the real physical world in
real-time. In the context of advertising and marketing, AR enables brands to bring their
products and messaging to life in interactive and immersive new dimensions. Common
examples of AR advertising include:
- AR filters on social media platforms like Snapchat, Instagram and Facebook that place
virtual objects and assets into the camera view for users to interact with. Brands have created
AR lenses and filters promoting everything from movies to food products.
- AR mobile apps that allow users to point their phone camera at the real world and see
virtual 3D models of products they can interact with. Furniture brands allow people to
“place” sofas and beds in their living rooms for example.
- AR apps integrated with ecommerce sites that power virtual “try-on” experiences for
clothing, accessories, cosmetics and more using augmented cameras. Users can preview how
items will look before purchase.
- AR incorporated within live-streamed and prerecorded video content across platforms.
Viewers see brand messaging and experiences augmenting the real footage.
- AR activation zones at retail pop-ups, trade shows and events that unlock unique immersive
experiences for attendees through their mobile devices.
The goal of AR advertising is to create highly engaging and shareable brand interactions that
drive awareness, consideration and purchase. It aims to take advertising to a new interactive
dimension beyond static images and videos.
Accounting for AR Campaign Investments
From an accounting perspective, investments in AR marketing campaigns present novel
challenges due to the lack of definitive guidance and precedence in existing frameworks.
Some of the key issues that must be addressed include:
- Identifying and defining the nature of costs incurred - Are they marketing costs,
development costs, intangible asset costs?
- Timing of recognition - Should costs be expensed as incurred or capitalized for future
periods?
- Measurement of value - How should the “value” of AR campaigns and their potential future
benefits be assessed and represented on the balance sheet?
- Impairment assessment - At what point should the value of capitalized AR investments be
written down if expected benefits fail to materialize?
- amortization period - Over what time period should capitalized costs be allocated (if at all)?
AR technologies and user preferences evolve rapidly.
These challenges stem from the fact that AR represents an emerging technology, business
models are still evolving and there is uncertainty around user adoption and ROI
quantification. Both IFRS and GAAP provide some relevant guidance but lack definitive
rules.
IFRS Perspective
Under International Accounting Standard (IAS) 38 - Intangible Assets, costs associated with
AR campaigns could potentially be classified and accounted for as:
- Research costs - Expensed as incurred as they do not meet the definition of an intangible
asset. Includes general investigation and concept development activities.
- Development costs - Potentially capitalized if they meet specific criteria. Must demonstrate
technical feasibility to completion, intent and ability to use/sell, expenditures identifiable and
reliably measured. Capitalized as an intangible development asset.
- Marketing costs - Normally expensed unless they are directly attributable to
advertising/promoting intangible assets that meet the definition and recognition criteria of
IAS 38 before they are available for use.
However, as AR technology is still emerging, it may be difficult to clearly distinguish
research from development activities or demonstrate an intangible asset has been created per
IAS 38 criteria. Significant management judgment is required.
IFRS provides no definitive guidance around impairment testing or amortization periods for
intangible assets either. Companies would have to use reasonable estimates and assumptions
considering AR's unique characteristics and rapid evolution. Overall, IFRS principles leave
room for interpretation and lack definitive rules for AR investments.
GAAP Perspective
Similarly under US GAAP, the accounting treatment of AR campaign costs under ASC 350-
40 (Internal-Use Software), ASC 720-15 (Advertising Costs) or ASC 985-20 (Costs of
Software to be Sold, Leased or Marketed) would depend on which definition and
capitalization criteria the costs meet, if any.
Some key distinctions from IFRS include:
- Internal use software costs can be capitalized only after completion of the "preliminary
project stage". For AR this may be difficult to define.
- Advertising costs are expensed unless they meet requirements of ASC 720-35 to be
capitalized as "direct-response advertising". Requires demonstrated ability to bring future
economic benefits.
- Software costs capitalized per ASC 985-20 have more definitive future economic benefits
requirements vs. IAS 38. Still challenging to apply to AR due to uncertainties.
- Amortization guidance suggests useful lives not exceeding 3 years which likely do not
reflect AR investment lifecycles and rapid evolution.
Overall, GAAP is more rules-based than IFRS but similarly lacks definitive principles for
recognition and measurement of AR costs given its unique nature and business models.
Significant judgment is still required by management. Both frameworks provide flexibility
that can impact financial reporting.
Proposed Accounting Model for AR Investments
Given the lack of explicit guidance in IFRS and GAAP, this paper proposes the following
principles-based approach for accounting for investments in AR marketing campaigns:
Recognition:
- Early stage "research" costs which do not meet the definition of an asset should be expensed
- All other material costs which are directly attributable to developing identifiable AR
technical platforms, content, activations etc. that are controlled by the entity should be
capitalized as intangible development assets.
- Careful consideration of what constitutes "development" vs. "marketing" required given
blurred lines for AR. Non-marketing costs should meet IAS 38/GAAP capitalization criteria.
Measurement:
- Fair value (value in use) of capitalized intangible assets should be estimated using
discounted projected cash flows from AR campaigns factoring in technological/user behavior
risks given rapid evolution.
- Impairment testing required annually or if indicators exist. Write down value if exceeds
recoverable amount estimated using similar fair value approach.
Amortization:
- Straight-line over estimated useful economic life of 3-5 years max reflecting rapid AR
changes. Regular reviews of useful life required.
- Accelerated amortization if usage/outcomes fall below expectations to timely write down
value.
Disclosure:
- Robust disclosure of accounting policies for AR intangibles, judgments, impairment
considerations and sensitivities required.
This proposed model aims to balance principles of asset recognition and long-term benefits
while also accounting for AR's unique attributes and risks. It provides a structured yet
flexible framework for management to apply. Regular reviews are paramount given AR
dynamics.
Accounting Software Solutions for AR
As AR investments grow, dedicated accounting software solutions are emerging to help
streamline the implementation of the proposed model:
- Specialized AR project management software and workflow tools integrate time tracking,
expense categorization and capitalization monitoring for AR campaigns across departments
and vendors. Automate data collection for subsequent financial reporting.
- Valuation modules help formally estimate the fair value of AR intangible assets through
discounted cash flow models capturing unique technological and revenue assumptions. Run
sensitivity analyses on AR forecasts and risks.
- Impairment modules trigger quantitative impairment tests annually or if indicators exist and
automatically calculate recoverable amounts. Potential write downs are automatically
journaled.
- Advanced amortization modules allocate the cost of AR intangible assets over their
estimated useful lives using straight-line or other methods as chosen by management.
- Dashboards and reports pull data from various modules to generate consolidated financial
statements, notes disclosures, and key operational metrics on AR investments tailored for
management and auditors.
The use of specialized accounting software can significantly enhance the consistency,
reliability and auditability of accounting for investments in AR while reducing manual
processes and judgement risks. Integration across AR technology and financial systems is key
to their effectiveness.
Conclusion
As AR advertising gains traction, recognizing and appropriately measuring related marketing
investments presents pressing challenges for financial reporting frameworks. While IFRS and
GAAP provide some overarching guidelines, they lack definitive principles specific to AR's
novel attributes and business models. This necessitates significant management judgement
and introduces reporting inconsistencies between entities.
This paper has proposed a high-level principles-based model for accounting for AR
investments encompassing recognition, measurement, impairment testing and amortization
considerations given technology and business evolution risks. It balances the need for
principles versus prescriptive rules. Robust disclosure is also emphasized.
Dedicated accounting software tools can efficiently operationalize such a model while
enhancing consistency, controls and auditability for AR campaign investments. As
technologies mature, frameworks may incorporate more definitive AR-specific guidance
informed by practices developed. Overall, navigating AR’s accounting requires specialized
knowledge and flexibility as new frontiers are explored.
Augmented reality (AR) is becoming an increasingly popular form of digital advertising and
marketing. Major brands and companies are investing heavily in AR technologies to engage
consumers in innovative new ways. However, accounting for investments in AR marketing
campaigns presents novel challenges due to the uniqueness of the technology and business
models involved. This paper will examine the key accounting issues surrounding the
recognition and measurement of investments in AR advertising from both an International
Financial Reporting Standards (IFRS) and Generally Accepted Accounting Principles
(GAAP) perspective.
What is Augmented Reality Advertising?
Augmented reality uses a combination of software and hardware like smartphones, tablets,
smart glasses etc. to overlay digital objects and information onto the real physical world in
real-time. In the context of advertising and marketing, AR enables brands to bring their
products and messaging to life in interactive and immersive new dimensions. Common
examples of AR advertising include:
- AR filters on social media platforms like Snapchat, Instagram and Facebook that place
virtual objects and assets into the camera view for users to interact with. Brands have created
AR lenses and filters promoting everything from movies to food products.
- AR mobile apps that allow users to point their phone camera at the real world and see
virtual 3D models of products they can interact with. Furniture brands allow people to
“place” sofas and beds in their living rooms for example.
- AR apps integrated with ecommerce sites that power virtual “try-on” experiences for
clothing, accessories, cosmetics and more using augmented cameras. Users can preview how
items will look before purchase.
- AR incorporated within live-streamed and prerecorded video content across platforms.
Viewers see brand messaging and experiences augmenting the real footage.
- AR activation zones at retail pop-ups, trade shows and events that unlock unique immersive
experiences for attendees through their mobile devices.
The goal of AR advertising is to create highly engaging and shareable brand interactions that
drive awareness, consideration and purchase. It aims to take advertising to a new interactive
dimension beyond static images and videos.
Accounting for AR Campaign Investments
From an accounting perspective, investments in AR marketing campaigns present novel
challenges due to the lack of definitive guidance and precedence in existing frameworks.
Some of the key issues that must be addressed include:
- Identifying and defining the nature of costs incurred - Are they marketing costs,
development costs, intangible asset costs?
- Timing of recognition - Should costs be expensed as incurred or capitalized for future
periods?
- Measurement of value - How should the “value” of AR campaigns and their potential future
benefits be assessed and represented on the balance sheet?
- Impairment assessment - At what point should the value of capitalized AR investments be
written down if expected benefits fail to materialize?
- amortization period - Over what time period should capitalized costs be allocated (if at all)?
AR technologies and user preferences evolve rapidly.
These challenges stem from the fact that AR represents an emerging technology, business
models are still evolving and there is uncertainty around user adoption and ROI
quantification. Both IFRS and GAAP provide some relevant guidance but lack definitive
rules.
IFRS Perspective
Under International Accounting Standard (IAS) 38 - Intangible Assets, costs associated with
AR campaigns could potentially be classified and accounted for as:
- Research costs - Expensed as incurred as they do not meet the definition of an intangible
asset. Includes general investigation and concept development activities.
- Development costs - Potentially capitalized if they meet specific criteria. Must demonstrate
technical feasibility to completion, intent and ability to use/sell, expenditures identifiable and
reliably measured. Capitalized as an intangible development asset.
- Marketing costs - Normally expensed unless they are directly attributable to
advertising/promoting intangible assets that meet the definition and recognition criteria of
IAS 38 before they are available for use.
However, as AR technology is still emerging, it may be difficult to clearly distinguish
research from development activities or demonstrate an intangible asset has been created per
IAS 38 criteria. Significant management judgment is required.
IFRS provides no definitive guidance around impairment testing or amortization periods for
intangible assets either. Companies would have to use reasonable estimates and assumptions
considering AR's unique characteristics and rapid evolution. Overall, IFRS principles leave
room for interpretation and lack definitive rules for AR investments.
GAAP Perspective
Similarly under US GAAP, the accounting treatment of AR campaign costs under ASC 350-
40 (Internal-Use Software), ASC 720-15 (Advertising Costs) or ASC 985-20 (Costs of
Software to be Sold, Leased or Marketed) would depend on which definition and
capitalization criteria the costs meet, if any.
Some key distinctions from IFRS include:
- Internal use software costs can be capitalized only after completion of the "preliminary
project stage". For AR this may be difficult to define.
- Advertising costs are expensed unless they meet requirements of ASC 720-35 to be
capitalized as "direct-response advertising". Requires demonstrated ability to bring future
economic benefits.
- Software costs capitalized per ASC 985-20 have more definitive future economic benefits
requirements vs. IAS 38. Still challenging to apply to AR due to uncertainties.
- Amortization guidance suggests useful lives not exceeding 3 years which likely do not
reflect AR investment lifecycles and rapid evolution.
Overall, GAAP is more rules-based than IFRS but similarly lacks definitive principles for
recognition and measurement of AR costs given its unique nature and business models.
Significant judgment is still required by management. Both frameworks provide flexibility
that can impact financial reporting.
Proposed Accounting Model for AR Investments
Given the lack of explicit guidance in IFRS and GAAP, this paper proposes the following
principles-based approach for accounting for investments in AR marketing campaigns:
Recognition:
- Early stage "research" costs which do not meet the definition of an asset should be expensed
- All other material costs which are directly attributable to developing identifiable AR
technical platforms, content, activations etc. that are controlled by the entity should be
capitalized as intangible development assets.
- Careful consideration of what constitutes "development" vs. "marketing" required given
blurred lines for AR. Non-marketing costs should meet IAS 38/GAAP capitalization criteria.
Measurement:
- Fair value (value in use) of capitalized intangible assets should be estimated using
discounted projected cash flows from AR campaigns factoring in technological/user behavior
risks given rapid evolution.
- Impairment testing required annually or if indicators exist. Write down value if exceeds
recoverable amount estimated using similar fair value approach.
Amortization:
- Straight-line over estimated useful economic life of 3-5 years max reflecting rapid AR
changes. Regular reviews of useful life required.
- Accelerated amortization if usage/outcomes fall below expectations to timely write down
value.
Disclosure:
- Robust disclosure of accounting policies for AR intangibles, judgments, impairment
considerations and sensitivities required.
This proposed model aims to balance principles of asset recognition and long-term benefits
while also accounting for AR's unique attributes and risks. It provides a structured yet
flexible framework for management to apply. Regular reviews are paramount given AR
dynamics.
Accounting Software Solutions for AR
As AR investments grow, dedicated accounting software solutions are emerging to help
streamline the implementation of the proposed model:
- Specialized AR project management software and workflow tools integrate time tracking,
expense categorization and capitalization monitoring for AR campaigns across departments
and vendors. Automate data collection for subsequent financial reporting.
- Valuation modules help formally estimate the fair value of AR intangible assets through
discounted cash flow models capturing unique technological and revenue assumptions. Run
sensitivity analyses on AR forecasts and risks.
- Impairment modules trigger quantitative impairment tests annually or if indicators exist and
automatically calculate recoverable amounts. Potential write downs are automatically
journaled.
- Advanced amortization modules allocate the cost of AR intangible assets over their
estimated useful lives using straight-line or other methods as chosen by management.
- Dashboards and reports pull data from various modules to generate consolidated financial
statements, notes disclosures, and key operational metrics on AR investments tailored for
management and auditors.
The use of specialized accounting software can significantly enhance the consistency,
reliability and auditability of accounting for investments in AR while reducing manual
processes and judgement risks. Integration across AR technology and financial systems is key
to their effectiveness.
Conclusion
As AR advertising gains traction, recognizing and appropriately measuring related marketing
investments presents pressing challenges for financial reporting frameworks. While IFRS and
GAAP provide some overarching guidelines, they lack definitive principles specific to AR's
novel attributes and business models. This necessitates significant management judgement
and introduces reporting inconsistencies between entities.
This paper has proposed a high-level principles-based model for accounting for AR
investments encompassing recognition, measurement, impairment testing and amortization
considerations given technology and business evolution risks. It balances the need for
principles versus prescriptive rules. Robust disclosure is also emphasized.
Dedicated accounting software tools can efficiently operationalize such a model while
enhancing consistency, controls and auditability for AR campaign investments. As
technologies mature, frameworks may incorporate more definitive AR-specific guidance
informed by practices developed. Overall, navigating AR’s accounting requires specialized
knowledge and flexibility as new frontiers are explored.
Augmented reality (AR) is becoming an increasingly popular form of digital advertising and
marketing. Major brands and companies are investing heavily in AR technologies to engage
consumers in innovative new ways. However, accounting for investments in AR marketing
campaigns presents novel challenges due to the uniqueness of the technology and business
models involved. This paper will examine the key accounting issues surrounding the
recognition and measurement of investments in AR advertising from both an International
Financial Reporting Standards (IFRS) and Generally Accepted Accounting Principles
(GAAP) perspective.
What is Augmented Reality Advertising?
Augmented reality uses a combination of software and hardware like smartphones, tablets,
smart glasses etc. to overlay digital objects and information onto the real physical world in
real-time. In the context of advertising and marketing, AR enables brands to bring their
products and messaging to life in interactive and immersive new dimensions. Common
examples of AR advertising include:
- AR filters on social media platforms like Snapchat, Instagram and Facebook that place
virtual objects and assets into the camera view for users to interact with. Brands have created
AR lenses and filters promoting everything from movies to food products.
- AR mobile apps that allow users to point their phone camera at the real world and see
virtual 3D models of products they can interact with. Furniture brands allow people to
“place” sofas and beds in their living rooms for example.
- AR apps integrated with ecommerce sites that power virtual “try-on” experiences for
clothing, accessories, cosmetics and more using augmented cameras. Users can preview how
items will look before purchase.
- AR incorporated within live-streamed and prerecorded video content across platforms.
Viewers see brand messaging and experiences augmenting the real footage.
- AR activation zones at retail pop-ups, trade shows and events that unlock unique immersive
experiences for attendees through their mobile devices.
The goal of AR advertising is to create highly engaging and shareable brand interactions that
drive awareness, consideration and purchase. It aims to take advertising to a new interactive
dimension beyond static images and videos.
Accounting for AR Campaign Investments
From an accounting perspective, investments in AR marketing campaigns present novel
challenges due to the lack of definitive guidance and precedence in existing frameworks.
Some of the key issues that must be addressed include:
- Identifying and defining the nature of costs incurred - Are they marketing costs,
development costs, intangible asset costs?
- Timing of recognition - Should costs be expensed as incurred or capitalized for future
periods?
- Measurement of value - How should the “value” of AR campaigns and their potential future
benefits be assessed and represented on the balance sheet?
- Impairment assessment - At what point should the value of capitalized AR investments be
written down if expected benefits fail to materialize?
- amortization period - Over what time period should capitalized costs be allocated (if at all)?
AR technologies and user preferences evolve rapidly.
These challenges stem from the fact that AR represents an emerging technology, business
models are still evolving and there is uncertainty around user adoption and ROI
quantification. Both IFRS and GAAP provide some relevant guidance but lack definitive
rules.
IFRS Perspective
Under International Accounting Standard (IAS) 38 - Intangible Assets, costs associated with
AR campaigns could potentially be classified and accounted for as:
- Research costs - Expensed as incurred as they do not meet the definition of an intangible
asset. Includes general investigation and concept development activities.
- Development costs - Potentially capitalized if they meet specific criteria. Must demonstrate
technical feasibility to completion, intent and ability to use/sell, expenditures identifiable and
reliably measured. Capitalized as an intangible development asset.
- Marketing costs - Normally expensed unless they are directly attributable to
advertising/promoting intangible assets that meet the definition and recognition criteria of
IAS 38 before they are available for use.
However, as AR technology is still emerging, it may be difficult to clearly distinguish
research from development activities or demonstrate an intangible asset has been created per
IAS 38 criteria. Significant management judgment is required.
IFRS provides no definitive guidance around impairment testing or amortization periods for
intangible assets either. Companies would have to use reasonable estimates and assumptions
considering AR's unique characteristics and rapid evolution. Overall, IFRS principles leave
room for interpretation and lack definitive rules for AR investments.
GAAP Perspective
Similarly under US GAAP, the accounting treatment of AR campaign costs under ASC 350-
40 (Internal-Use Software), ASC 720-15 (Advertising Costs) or ASC 985-20 (Costs of
Software to be Sold, Leased or Marketed) would depend on which definition and
capitalization criteria the costs meet, if any.
Some key distinctions from IFRS include:
- Internal use software costs can be capitalized only after completion of the "preliminary
project stage". For AR this may be difficult to define.
- Advertising costs are expensed unless they meet requirements of ASC 720-35 to be
capitalized as "direct-response advertising". Requires demonstrated ability to bring future
economic benefits.
- Software costs capitalized per ASC 985-20 have more definitive future economic benefits
requirements vs. IAS 38. Still challenging to apply to AR due to uncertainties.
- Amortization guidance suggests useful lives not exceeding 3 years which likely do not
reflect AR investment lifecycles and rapid evolution.
Overall, GAAP is more rules-based than IFRS but similarly lacks definitive principles for
recognition and measurement of AR costs given its unique nature and business models.
Significant judgment is still required by management. Both frameworks provide flexibility
that can impact financial reporting.
Proposed Accounting Model for AR Investments
Given the lack of explicit guidance in IFRS and GAAP, this paper proposes the following
principles-based approach for accounting for investments in AR marketing campaigns:
Recognition:
- Early stage "research" costs which do not meet the definition of an asset should be expensed
- All other material costs which are directly attributable to developing identifiable AR
technical platforms, content, activations etc. that are controlled by the entity should be
capitalized as intangible development assets.
- Careful consideration of what constitutes "development" vs. "marketing" required given
blurred lines for AR. Non-marketing costs should meet IAS 38/GAAP capitalization criteria.
Measurement:
- Fair value (value in use) of capitalized intangible assets should be estimated using
discounted projected cash flows from AR campaigns factoring in technological/user behavior
risks given rapid evolution.
- Impairment testing required annually or if indicators exist. Write down value if exceeds
recoverable amount estimated using similar fair value approach.
Amortization:
- Straight-line over estimated useful economic life of 3-5 years max reflecting rapid AR
changes. Regular reviews of useful life required.
- Accelerated amortization if usage/outcomes fall below expectations to timely write down
value.
Disclosure:
- Robust disclosure of accounting policies for AR intangibles, judgments, impairment
considerations and sensitivities required.
This proposed model aims to balance principles of asset recognition and long-term benefits
while also accounting for AR's unique attributes and risks. It provides a structured yet
flexible framework for management to apply. Regular reviews are paramount given AR
dynamics.
Accounting Software Solutions for AR
As AR investments grow, dedicated accounting software solutions are emerging to help
streamline the implementation of the proposed model:
- Specialized AR project management software and workflow tools integrate time tracking,
expense categorization and capitalization monitoring for AR campaigns across departments
and vendors. Automate data collection for subsequent financial reporting.
- Valuation modules help formally estimate the fair value of AR intangible assets through
discounted cash flow models capturing unique technological and revenue assumptions. Run
sensitivity analyses on AR forecasts and risks.
- Impairment modules trigger quantitative impairment tests annually or if indicators exist and
automatically calculate recoverable amounts. Potential write downs are automatically
journaled.
- Advanced amortization modules allocate the cost of AR intangible assets over their
estimated useful lives using straight-line or other methods as chosen by management.
- Dashboards and reports pull data from various modules to generate consolidated financial
statements, notes disclosures, and key operational metrics on AR investments tailored for
management and auditors.
The use of specialized accounting software can significantly enhance the consistency,
reliability and auditability of accounting for investments in AR while reducing manual
processes and judgement risks. Integration across AR technology and financial systems is key
to their effectiveness.
Conclusion
As AR advertising gains traction, recognizing and appropriately measuring related marketing
investments presents pressing challenges for financial reporting frameworks. While IFRS and
GAAP provide some overarching guidelines, they lack definitive principles specific to AR's
novel attributes and business models. This necessitates significant management judgement
and introduces reporting inconsistencies between entities.
This paper has proposed a high-level principles-based model for accounting for AR
investments encompassing recognition, measurement, impairment testing and amortization
considerations given technology and business evolution risks. It balances the need for
principles versus prescriptive rules. Robust disclosure is also emphasized.
Dedicated accounting software tools can efficiently operationalize such a model while
enhancing consistency, controls and auditability for AR campaign investments. As
technologies mature, frameworks may incorporate more definitive AR-specific guidance
informed by practices developed. Overall, navigating AR’s accounting requires specialized
knowledge and flexibility as new frontiers are explored.
Augmented reality (AR) is becoming an increasingly popular form of digital advertising and
marketing. Major brands and companies are investing heavily in AR technologies to engage
consumers in innovative new ways. However, accounting for investments in AR marketing
campaigns presents novel challenges due to the uniqueness of the technology and business
models involved. This paper will examine the key accounting issues surrounding the
recognition and measurement of investments in AR advertising from both an International
Financial Reporting Standards (IFRS) and Generally Accepted Accounting Principles
(GAAP) perspective.
What is Augmented Reality Advertising?
Augmented reality uses a combination of software and hardware like smartphones, tablets,
smart glasses etc. to overlay digital objects and information onto the real physical world in
real-time. In the context of advertising and marketing, AR enables brands to bring their
products and messaging to life in interactive and immersive new dimensions. Common
examples of AR advertising include:
- AR filters on social media platforms like Snapchat, Instagram and Facebook that place
virtual objects and assets into the camera view for users to interact with. Brands have created
AR lenses and filters promoting everything from movies to food products.
- AR mobile apps that allow users to point their phone camera at the real world and see
virtual 3D models of products they can interact with. Furniture brands allow people to
“place” sofas and beds in their living rooms for example.
- AR apps integrated with ecommerce sites that power virtual “try-on” experiences for
clothing, accessories, cosmetics and more using augmented cameras. Users can preview how
items will look before purchase.
- AR incorporated within live-streamed and prerecorded video content across platforms.
Viewers see brand messaging and experiences augmenting the real footage.
- AR activation zones at retail pop-ups, trade shows and events that unlock unique immersive
experiences for attendees through their mobile devices.
The goal of AR advertising is to create highly engaging and shareable brand interactions that
drive awareness, consideration and purchase. It aims to take advertising to a new interactive
dimension beyond static images and videos.
Accounting for AR Campaign Investments
From an accounting perspective, investments in AR marketing campaigns present novel
challenges due to the lack of definitive guidance and precedence in existing frameworks.
Some of the key issues that must be addressed include:
- Identifying and defining the nature of costs incurred - Are they marketing costs,
development costs, intangible asset costs?
- Timing of recognition - Should costs be expensed as incurred or capitalized for future
periods?
- Measurement of value - How should the “value” of AR campaigns and their potential future
benefits be assessed and represented on the balance sheet?
- Impairment assessment - At what point should the value of capitalized AR investments be
written down if expected benefits fail to materialize?
- amortization period - Over what time period should capitalized costs be allocated (if at all)?
AR technologies and user preferences evolve rapidly.
These challenges stem from the fact that AR represents an emerging technology, business
models are still evolving and there is uncertainty around user adoption and ROI
quantification. Both IFRS and GAAP provide some relevant guidance but lack definitive
rules.
IFRS Perspective
Under International Accounting Standard (IAS) 38 - Intangible Assets, costs associated with
AR campaigns could potentially be classified and accounted for as:
- Research costs - Expensed as incurred as they do not meet the definition of an intangible
asset. Includes general investigation and concept development activities.
- Development costs - Potentially capitalized if they meet specific criteria. Must demonstrate
technical feasibility to completion, intent and ability to use/sell, expenditures identifiable and
reliably measured. Capitalized as an intangible development asset.
- Marketing costs - Normally expensed unless they are directly attributable to
advertising/promoting intangible assets that meet the definition and recognition criteria of
IAS 38 before they are available for use.
However, as AR technology is still emerging, it may be difficult to clearly distinguish
research from development activities or demonstrate an intangible asset has been created per
IAS 38 criteria. Significant management judgment is required.
IFRS provides no definitive guidance around impairment testing or amortization periods for
intangible assets either. Companies would have to use reasonable estimates and assumptions
considering AR's unique characteristics and rapid evolution. Overall, IFRS principles leave
room for interpretation and lack definitive rules for AR investments.
GAAP Perspective
Similarly under US GAAP, the accounting treatment of AR campaign costs under ASC 350-
40 (Internal-Use Software), ASC 720-15 (Advertising Costs) or ASC 985-20 (Costs of
Software to be Sold, Leased or Marketed) would depend on which definition and
capitalization criteria the costs meet, if any.
Some key distinctions from IFRS include:
- Internal use software costs can be capitalized only after completion of the "preliminary
project stage". For AR this may be difficult to define.
- Advertising costs are expensed unless they meet requirements of ASC 720-35 to be
capitalized as "direct-response advertising". Requires demonstrated ability to bring future
economic benefits.
- Software costs capitalized per ASC 985-20 have more definitive future economic benefits
requirements vs. IAS 38. Still challenging to apply to AR due to uncertainties.
- Amortization guidance suggests useful lives not exceeding 3 years which likely do not
reflect AR investment lifecycles and rapid evolution.
Overall, GAAP is more rules-based than IFRS but similarly lacks definitive principles for
recognition and measurement of AR costs given its unique nature and business models.
Significant judgment is still required by management. Both frameworks provide flexibility
that can impact financial reporting.
Proposed Accounting Model for AR Investments
Given the lack of explicit guidance in IFRS and GAAP, this paper proposes the following
principles-based approach for accounting for investments in AR marketing campaigns:
Recognition:
- Early stage "research" costs which do not meet the definition of an asset should be expensed
- All other material costs which are directly attributable to developing identifiable AR
technical platforms, content, activations etc. that are controlled by the entity should be
capitalized as intangible development assets.
- Careful consideration of what constitutes "development" vs. "marketing" required given
blurred lines for AR. Non-marketing costs should meet IAS 38/GAAP capitalization criteria.
Measurement:
- Fair value (value in use) of capitalized intangible assets should be estimated using
discounted projected cash flows from AR campaigns factoring in technological/user behavior
risks given rapid evolution.
- Impairment testing required annually or if indicators exist. Write down value if exceeds
recoverable amount estimated using similar fair value approach.
Amortization:
- Straight-line over estimated useful economic life of 3-5 years max reflecting rapid AR
changes. Regular reviews of useful life required.
- Accelerated amortization if usage/outcomes fall below expectations to timely write down
value.
Disclosure:
- Robust disclosure of accounting policies for AR intangibles, judgments, impairment
considerations and sensitivities required.
This proposed model aims to balance principles of asset recognition and long-term benefits
while also accounting for AR's unique attributes and risks. It provides a structured yet
flexible framework for management to apply. Regular reviews are paramount given AR
dynamics.
Accounting Software Solutions for AR
As AR investments grow, dedicated accounting software solutions are emerging to help
streamline the implementation of the proposed model:
- Specialized AR project management software and workflow tools integrate time tracking,
expense categorization and capitalization monitoring for AR campaigns across departments
and vendors. Automate data collection for subsequent financial reporting.
- Valuation modules help formally estimate the fair value of AR intangible assets through
discounted cash flow models capturing unique technological and revenue assumptions. Run
sensitivity analyses on AR forecasts and risks.
- Impairment modules trigger quantitative impairment tests annually or if indicators exist and
automatically calculate recoverable amounts. Potential write downs are automatically
journaled.
- Advanced amortization modules allocate the cost of AR intangible assets over their
estimated useful lives using straight-line or other methods as chosen by management.
- Dashboards and reports pull data from various modules to generate consolidated financial
statements, notes disclosures, and key operational metrics on AR investments tailored for
management and auditors.
The use of specialized accounting software can significantly enhance the consistency,
reliability and auditability of accounting for investments in AR while reducing manual
processes and judgement risks. Integration across AR technology and financial systems is key
to their effectiveness.
Conclusion
As AR advertising gains traction, recognizing and appropriately measuring related marketing
investments presents pressing challenges for financial reporting frameworks. While IFRS and
GAAP provide some overarching guidelines, they lack definitive principles specific to AR's
novel attributes and business models. This necessitates significant management judgement
and introduces reporting inconsistencies between entities.
This paper has proposed a high-level principles-based model for accounting for AR
investments encompassing recognition, measurement, impairment testing and amortization
considerations given technology and business evolution risks. It balances the need for
principles versus prescriptive rules. Robust disclosure is also emphasized.
Dedicated accounting software tools can efficiently operationalize such a model while
enhancing consistency, controls and auditability for AR campaign investments. As
technologies mature, frameworks may incorporate more definitive AR-specific guidance
informed by practices developed. Overall, navigating AR’s accounting requires specialized
knowledge and flexibility as new frontiers are explored.
Augmented reality (AR) is becoming an increasingly popular form of digital advertising and
marketing. Major brands and companies are investing heavily in AR technologies to engage
consumers in innovative new ways. However, accounting for investments in AR marketing
campaigns presents novel challenges due to the uniqueness of the technology and business
models involved. This paper will examine the key accounting issues surrounding the
recognition and measurement of investments in AR advertising from both an International
Financial Reporting Standards (IFRS) and Generally Accepted Accounting Principles
(GAAP) perspective.
What is Augmented Reality Advertising?
Augmented reality uses a combination of software and hardware like smartphones, tablets,
smart glasses etc. to overlay digital objects and information onto the real physical world in
real-time. In the context of advertising and marketing, AR enables brands to bring their
products and messaging to life in interactive and immersive new dimensions. Common
examples of AR advertising include:
- AR filters on social media platforms like Snapchat, Instagram and Facebook that place
virtual objects and assets into the camera view for users to interact with. Brands have created
AR lenses and filters promoting everything from movies to food products.
- AR mobile apps that allow users to point their phone camera at the real world and see
virtual 3D models of products they can interact with. Furniture brands allow people to
“place” sofas and beds in their living rooms for example.
- AR apps integrated with ecommerce sites that power virtual “try-on” experiences for
clothing, accessories, cosmetics and more using augmented cameras. Users can preview how
items will look before purchase.
- AR incorporated within live-streamed and prerecorded video content across platforms.
Viewers see brand messaging and experiences augmenting the real footage.
- AR activation zones at retail pop-ups, trade shows and events that unlock unique immersive
experiences for attendees through their mobile devices.
The goal of AR advertising is to create highly engaging and shareable brand interactions that
drive awareness, consideration and purchase. It aims to take advertising to a new interactive
dimension beyond static images and videos.
Accounting for AR Campaign Investments
From an accounting perspective, investments in AR marketing campaigns present novel
challenges due to the lack of definitive guidance and precedence in existing frameworks.
Some of the key issues that must be addressed include:
- Identifying and defining the nature of costs incurred - Are they marketing costs,
development costs, intangible asset costs?
- Timing of recognition - Should costs be expensed as incurred or capitalized for future
periods?
- Measurement of value - How should the “value” of AR campaigns and their potential future
benefits be assessed and represented on the balance sheet?
- Impairment assessment - At what point should the value of capitalized AR investments be
written down if expected benefits fail to materialize?
- amortization period - Over what time period should capitalized costs be allocated (if at all)?
AR technologies and user preferences evolve rapidly.
These challenges stem from the fact that AR represents an emerging technology, business
models are still evolving and there is uncertainty around user adoption and ROI
quantification. Both IFRS and GAAP provide some relevant guidance but lack definitive
rules.
IFRS Perspective
Under International Accounting Standard (IAS) 38 - Intangible Assets, costs associated with
AR campaigns could potentially be classified and accounted for as:
- Research costs - Expensed as incurred as they do not meet the definition of an intangible
asset. Includes general investigation and concept development activities.
- Development costs - Potentially capitalized if they meet specific criteria. Must demonstrate
technical feasibility to completion, intent and ability to use/sell, expenditures identifiable and
reliably measured. Capitalized as an intangible development asset.
- Marketing costs - Normally expensed unless they are directly attributable to
advertising/promoting intangible assets that meet the definition and recognition criteria of
IAS 38 before they are available for use.
However, as AR technology is still emerging, it may be difficult to clearly distinguish
research from development activities or demonstrate an intangible asset has been created per
IAS 38 criteria. Significant management judgment is required.
IFRS provides no definitive guidance around impairment testing or amortization periods for
intangible assets either. Companies would have to use reasonable estimates and assumptions
considering AR's unique characteristics and rapid evolution. Overall, IFRS principles leave
room for interpretation and lack definitive rules for AR investments.
GAAP Perspective
Similarly under US GAAP, the accounting treatment of AR campaign costs under ASC 350-
40 (Internal-Use Software), ASC 720-15 (Advertising Costs) or ASC 985-20 (Costs of
Software to be Sold, Leased or Marketed) would depend on which definition and
capitalization criteria the costs meet, if any.
Some key distinctions from IFRS include:
- Internal use software costs can be capitalized only after completion of the "preliminary
project stage". For AR this may be difficult to define.
- Advertising costs are expensed unless they meet requirements of ASC 720-35 to be
capitalized as "direct-response advertising". Requires demonstrated ability to bring future
economic benefits.
- Software costs capitalized per ASC 985-20 have more definitive future economic benefits
requirements vs. IAS 38. Still challenging to apply to AR due to uncertainties.
- Amortization guidance suggests useful lives not exceeding 3 years which likely do not
reflect AR investment lifecycles and rapid evolution.
Overall, GAAP is more rules-based than IFRS but similarly lacks definitive principles for
recognition and measurement of AR costs given its unique nature and business models.
Significant judgment is still required by management. Both frameworks provide flexibility
that can impact financial reporting.
Proposed Accounting Model for AR Investments
Given the lack of explicit guidance in IFRS and GAAP, this paper proposes the following
principles-based approach for accounting for investments in AR marketing campaigns:
Recognition:
- Early stage "research" costs which do not meet the definition of an asset should be expensed
- All other material costs which are directly attributable to developing identifiable AR
technical platforms, content, activations etc. that are controlled by the entity should be
capitalized as intangible development assets.
- Careful consideration of what constitutes "development" vs. "marketing" required given
blurred lines for AR. Non-marketing costs should meet IAS 38/GAAP capitalization criteria.
Measurement:
- Fair value (value in use) of capitalized intangible assets should be estimated using
discounted projected cash flows from AR campaigns factoring in technological/user behavior
risks given rapid evolution.
- Impairment testing required annually or if indicators exist. Write down value if exceeds
recoverable amount estimated using similar fair value approach.
Amortization:
- Straight-line over estimated useful economic life of 3-5 years max reflecting rapid AR
changes. Regular reviews of useful life required.
- Accelerated amortization if usage/outcomes fall below expectations to timely write down
value.
Disclosure:
- Robust disclosure of accounting policies for AR intangibles, judgments, impairment
considerations and sensitivities required.
This proposed model aims to balance principles of asset recognition and long-term benefits
while also accounting for AR's unique attributes and risks. It provides a structured yet
flexible framework for management to apply. Regular reviews are paramount given AR
dynamics.
Accounting Software Solutions for AR
As AR investments grow, dedicated accounting software solutions are emerging to help
streamline the implementation of the proposed model:
- Specialized AR project management software and workflow tools integrate time tracking,
expense categorization and capitalization monitoring for AR campaigns across departments
and vendors. Automate data collection for subsequent financial reporting.
- Valuation modules help formally estimate the fair value of AR intangible assets through
discounted cash flow models capturing unique technological and revenue assumptions. Run
sensitivity analyses on AR forecasts and risks.
- Impairment modules trigger quantitative impairment tests annually or if indicators exist and
automatically calculate recoverable amounts. Potential write downs are automatically
journaled.
- Advanced amortization modules allocate the cost of AR intangible assets over their
estimated useful lives using straight-line or other methods as chosen by management.
- Dashboards and reports pull data from various modules to generate consolidated financial
statements, notes disclosures, and key operational metrics on AR investments tailored for
management and auditors.
The use of specialized accounting software can significantly enhance the consistency,
reliability and auditability of accounting for investments in AR while reducing manual
processes and judgement risks. Integration across AR technology and financial systems is key
to their effectiveness.
Conclusion
As AR advertising gains traction, recognizing and appropriately measuring related marketing
investments presents pressing challenges for financial reporting frameworks. While IFRS and
GAAP provide some overarching guidelines, they lack definitive principles specific to AR's
novel attributes and business models. This necessitates significant management judgement
and introduces reporting inconsistencies between entities.
This paper has proposed a high-level principles-based model for accounting for AR
investments encompassing recognition, measurement, impairment testing and amortization
considerations given technology and business evolution risks. It balances the need for
principles versus prescriptive rules. Robust disclosure is also emphasized.
Dedicated accounting software tools can efficiently operationalize such a model while
enhancing consistency, controls and auditability for AR campaign investments. As
technologies mature, frameworks may incorporate more definitive AR-specific guidance
informed by practices developed. Overall, navigating AR’s accounting requires specialized
knowledge and flexibility as new frontiers are explored.
Augmented reality (AR) is becoming an increasingly popular form of digital advertising and
marketing. Major brands and companies are investing heavily in AR technologies to engage
consumers in innovative new ways. However, accounting for investments in AR marketing
campaigns presents novel challenges due to the uniqueness of the technology and business
models involved. This paper will examine the key accounting issues surrounding the
recognition and measurement of investments in AR advertising from both an International
Financial Reporting Standards (IFRS) and Generally Accepted Accounting Principles
(GAAP) perspective.
What is Augmented Reality Advertising?
Augmented reality uses a combination of software and hardware like smartphones, tablets,
smart glasses etc. to overlay digital objects and information onto the real physical world in
real-time. In the context of advertising and marketing, AR enables brands to bring their
products and messaging to life in interactive and immersive new dimensions. Common
examples of AR advertising include:
- AR filters on social media platforms like Snapchat, Instagram and Facebook that place
virtual objects and assets into the camera view for users to interact with. Brands have created
AR lenses and filters promoting everything from movies to food products.
- AR mobile apps that allow users to point their phone camera at the real world and see
virtual 3D models of products they can interact with. Furniture brands allow people to
“place” sofas and beds in their living rooms for example.
- AR apps integrated with ecommerce sites that power virtual “try-on” experiences for
clothing, accessories, cosmetics and more using augmented cameras. Users can preview how
items will look before purchase.
- AR incorporated within live-streamed and prerecorded video content across platforms.
Viewers see brand messaging and experiences augmenting the real footage.
- AR activation zones at retail pop-ups, trade shows and events that unlock unique immersive
experiences for attendees through their mobile devices.
The goal of AR advertising is to create highly engaging and shareable brand interactions that
drive awareness, consideration and purchase. It aims to take advertising to a new interactive
dimension beyond static images and videos.
Accounting for AR Campaign Investments
From an accounting perspective, investments in AR marketing campaigns present novel
challenges due to the lack of definitive guidance and precedence in existing frameworks.
Some of the key issues that must be addressed include:
- Identifying and defining the nature of costs incurred - Are they marketing costs,
development costs, intangible asset costs?
- Timing of recognition - Should costs be expensed as incurred or capitalized for future
periods?
- Measurement of value - How should the “value” of AR campaigns and their potential future
benefits be assessed and represented on the balance sheet?
- Impairment assessment - At what point should the value of capitalized AR investments be
written down if expected benefits fail to materialize?
- amortization period - Over what time period should capitalized costs be allocated (if at all)?
AR technologies and user preferences evolve rapidly.
These challenges stem from the fact that AR represents an emerging technology, business
models are still evolving and there is uncertainty around user adoption and ROI
quantification. Both IFRS and GAAP provide some relevant guidance but lack definitive
rules.
IFRS Perspective
Under International Accounting Standard (IAS) 38 - Intangible Assets, costs associated with
AR campaigns could potentially be classified and accounted for as:
- Research costs - Expensed as incurred as they do not meet the definition of an intangible
asset. Includes general investigation and concept development activities.
- Development costs - Potentially capitalized if they meet specific criteria. Must demonstrate
technical feasibility to completion, intent and ability to use/sell, expenditures identifiable and
reliably measured. Capitalized as an intangible development asset.
- Marketing costs - Normally expensed unless they are directly attributable to
advertising/promoting intangible assets that meet the definition and recognition criteria of
IAS 38 before they are available for use.
However, as AR technology is still emerging, it may be difficult to clearly distinguish
research from development activities or demonstrate an intangible asset has been created per
IAS 38 criteria. Significant management judgment is required.
IFRS provides no definitive guidance around impairment testing or amortization periods for
intangible assets either. Companies would have to use reasonable estimates and assumptions
considering AR's unique characteristics and rapid evolution. Overall, IFRS principles leave
room for interpretation and lack definitive rules for AR investments.
GAAP Perspective
Similarly under US GAAP, the accounting treatment of AR campaign costs under ASC 350-
40 (Internal-Use Software), ASC 720-15 (Advertising Costs) or ASC 985-20 (Costs of
Software to be Sold, Leased or Marketed) would depend on which definition and
capitalization criteria the costs meet, if any.
Some key distinctions from IFRS include:
- Internal use software costs can be capitalized only after completion of the "preliminary
project stage". For AR this may be difficult to define.
- Advertising costs are expensed unless they meet requirements of ASC 720-35 to be
capitalized as "direct-response advertising". Requires demonstrated ability to bring future
economic benefits.
- Software costs capitalized per ASC 985-20 have more definitive future economic benefits
requirements vs. IAS 38. Still challenging to apply to AR due to uncertainties.
- Amortization guidance suggests useful lives not exceeding 3 years which likely do not
reflect AR investment lifecycles and rapid evolution.
Overall, GAAP is more rules-based than IFRS but similarly lacks definitive principles for
recognition and measurement of AR costs given its unique nature and business models.
Significant judgment is still required by management. Both frameworks provide flexibility
that can impact financial reporting.
Proposed Accounting Model for AR Investments
Given the lack of explicit guidance in IFRS and GAAP, this paper proposes the following
principles-based approach for accounting for investments in AR marketing campaigns:
Recognition:
- Early stage "research" costs which do not meet the definition of an asset should be expensed
- All other material costs which are directly attributable to developing identifiable AR
technical platforms, content, activations etc. that are controlled by the entity should be
capitalized as intangible development assets.
- Careful consideration of what constitutes "development" vs. "marketing" required given
blurred lines for AR. Non-marketing costs should meet IAS 38/GAAP capitalization criteria.
Measurement:
- Fair value (value in use) of capitalized intangible assets should be estimated using
discounted projected cash flows from AR campaigns factoring in technological/user behavior
risks given rapid evolution.
- Impairment testing required annually or if indicators exist. Write down value if exceeds
recoverable amount estimated using similar fair value approach.
Amortization:
- Straight-line over estimated useful economic life of 3-5 years max reflecting rapid AR
changes. Regular reviews of useful life required.
- Accelerated amortization if usage/outcomes fall below expectations to timely write down
value.
Disclosure:
- Robust disclosure of accounting policies for AR intangibles, judgments, impairment
considerations and sensitivities required.
This proposed model aims to balance principles of asset recognition and long-term benefits
while also accounting for AR's unique attributes and risks. It provides a structured yet
flexible framework for management to apply. Regular reviews are paramount given AR
dynamics.
Accounting Software Solutions for AR
As AR investments grow, dedicated accounting software solutions are emerging to help
streamline the implementation of the proposed model:
- Specialized AR project management software and workflow tools integrate time tracking,
expense categorization and capitalization monitoring for AR campaigns across departments
and vendors. Automate data collection for subsequent financial reporting.
- Valuation modules help formally estimate the fair value of AR intangible assets through
discounted cash flow models capturing unique technological and revenue assumptions. Run
sensitivity analyses on AR forecasts and risks.
- Impairment modules trigger quantitative impairment tests annually or if indicators exist and
automatically calculate recoverable amounts. Potential write downs are automatically
journaled.
- Advanced amortization modules allocate the cost of AR intangible assets over their
estimated useful lives using straight-line or other methods as chosen by management.
- Dashboards and reports pull data from various modules to generate consolidated financial
statements, notes disclosures, and key operational metrics on AR investments tailored for
management and auditors.
The use of specialized accounting software can significantly enhance the consistency,
reliability and auditability of accounting for investments in AR while reducing manual
processes and judgement risks. Integration across AR technology and financial systems is key
to their effectiveness.
Conclusion
As AR advertising gains traction, recognizing and appropriately measuring related marketing
investments presents pressing challenges for financial reporting frameworks. While IFRS and
GAAP provide some overarching guidelines, they lack definitive principles specific to AR's
novel attributes and business models. This necessitates significant management judgement
and introduces reporting inconsistencies between entities.
This paper has proposed a high-level principles-based model for accounting for AR
investments encompassing recognition, measurement, impairment testing and amortization
considerations given technology and business evolution risks. It balances the need for
principles versus prescriptive rules. Robust disclosure is also emphasized.
Dedicated accounting software tools can efficiently operationalize such a model while
enhancing consistency, controls and auditability for AR campaign investments. As
technologies mature, frameworks may incorporate more definitive AR-specific guidance
informed by practices developed. Overall, navigating AR’s accounting requires specialized
knowledge and flexibility as new frontiers are explored.
Augmented reality (AR) is becoming an increasingly popular form of digital advertising and
marketing. Major brands and companies are investing heavily in AR technologies to engage
consumers in innovative new ways. However, accounting for investments in AR marketing
campaigns presents novel challenges due to the uniqueness of the technology and business
models involved. This paper will examine the key accounting issues surrounding the
recognition and measurement of investments in AR advertising from both an International
Financial Reporting Standards (IFRS) and Generally Accepted Accounting Principles
(GAAP) perspective.
What is Augmented Reality Advertising?
Augmented reality uses a combination of software and hardware like smartphones, tablets,
smart glasses etc. to overlay digital objects and information onto the real physical world in
real-time. In the context of advertising and marketing, AR enables brands to bring their
products and messaging to life in interactive and immersive new dimensions. Common
examples of AR advertising include:
- AR filters on social media platforms like Snapchat, Instagram and Facebook that place
virtual objects and assets into the camera view for users to interact with. Brands have created
AR lenses and filters promoting everything from movies to food products.
- AR mobile apps that allow users to point their phone camera at the real world and see
virtual 3D models of products they can interact with. Furniture brands allow people to
“place” sofas and beds in their living rooms for example.
- AR apps integrated with ecommerce sites that power virtual “try-on” experiences for
clothing, accessories, cosmetics and more using augmented cameras. Users can preview how
items will look before purchase.
- AR incorporated within live-streamed and prerecorded video content across platforms.
Viewers see brand messaging and experiences augmenting the real footage.
- AR activation zones at retail pop-ups, trade shows and events that unlock unique immersive
experiences for attendees through their mobile devices.
The goal of AR advertising is to create highly engaging and shareable brand interactions that
drive awareness, consideration and purchase. It aims to take advertising to a new interactive
dimension beyond static images and videos.
Accounting for AR Campaign Investments
From an accounting perspective, investments in AR marketing campaigns present novel
challenges due to the lack of definitive guidance and precedence in existing frameworks.
Some of the key issues that must be addressed include:
- Identifying and defining the nature of costs incurred - Are they marketing costs,
development costs, intangible asset costs?
- Timing of recognition - Should costs be expensed as incurred or capitalized for future
periods?
- Measurement of value - How should the “value” of AR campaigns and their potential future
benefits be assessed and represented on the balance sheet?
- Impairment assessment - At what point should the value of capitalized AR investments be
written down if expected benefits fail to materialize?
- amortization period - Over what time period should capitalized costs be allocated (if at all)?
AR technologies and user preferences evolve rapidly.
These challenges stem from the fact that AR represents an emerging technology, business
models are still evolving and there is uncertainty around user adoption and ROI
quantification. Both IFRS and GAAP provide some relevant guidance but lack definitive
rules.
IFRS Perspective
Under International Accounting Standard (IAS) 38 - Intangible Assets, costs associated with
AR campaigns could potentially be classified and accounted for as:
- Research costs - Expensed as incurred as they do not meet the definition of an intangible
asset. Includes general investigation and concept development activities.
- Development costs - Potentially capitalized if they meet specific criteria. Must demonstrate
technical feasibility to completion, intent and ability to use/sell, expenditures identifiable and
reliably measured. Capitalized as an intangible development asset.
- Marketing costs - Normally expensed unless they are directly attributable to
advertising/promoting intangible assets that meet the definition and recognition criteria of
IAS 38 before they are available for use.
However, as AR technology is still emerging, it may be difficult to clearly distinguish
research from development activities or demonstrate an intangible asset has been created per
IAS 38 criteria. Significant management judgment is required.
IFRS provides no definitive guidance around impairment testing or amortization periods for
intangible assets either. Companies would have to use reasonable estimates and assumptions
considering AR's unique characteristics and rapid evolution. Overall, IFRS principles leave
room for interpretation and lack definitive rules for AR investments.
GAAP Perspective
Similarly under US GAAP, the accounting treatment of AR campaign costs under ASC 350-
40 (Internal-Use Software), ASC 720-15 (Advertising Costs) or ASC 985-20 (Costs of
Software to be Sold, Leased or Marketed) would depend on which definition and
capitalization criteria the costs meet, if any.
Some key distinctions from IFRS include:
- Internal use software costs can be capitalized only after completion of the "preliminary
project stage". For AR this may be difficult to define.
- Advertising costs are expensed unless they meet requirements of ASC 720-35 to be
capitalized as "direct-response advertising". Requires demonstrated ability to bring future
economic benefits.
- Software costs capitalized per ASC 985-20 have more definitive future economic benefits
requirements vs. IAS 38. Still challenging to apply to AR due to uncertainties.
- Amortization guidance suggests useful lives not exceeding 3 years which likely do not
reflect AR investment lifecycles and rapid evolution.
Overall, GAAP is more rules-based than IFRS but similarly lacks definitive principles for
recognition and measurement of AR costs given its unique nature and business models.
Significant judgment is still required by management. Both frameworks provide flexibility
that can impact financial reporting.
Proposed Accounting Model for AR Investments
Given the lack of explicit guidance in IFRS and GAAP, this paper proposes the following
principles-based approach for accounting for investments in AR marketing campaigns:
Recognition:
- Early stage "research" costs which do not meet the definition of an asset should be expensed
- All other material costs which are directly attributable to developing identifiable AR
technical platforms, content, activations etc. that are controlled by the entity should be
capitalized as intangible development assets.
- Careful consideration of what constitutes "development" vs. "marketing" required given
blurred lines for AR. Non-marketing costs should meet IAS 38/GAAP capitalization criteria.
Measurement:
- Fair value (value in use) of capitalized intangible assets should be estimated using
discounted projected cash flows from AR campaigns factoring in technological/user behavior
risks given rapid evolution.
- Impairment testing required annually or if indicators exist. Write down value if exceeds
recoverable amount estimated using similar fair value approach.
Amortization:
- Straight-line over estimated useful economic life of 3-5 years max reflecting rapid AR
changes. Regular reviews of useful life required.
- Accelerated amortization if usage/outcomes fall below expectations to timely write down
value.
Disclosure:
- Robust disclosure of accounting policies for AR intangibles, judgments, impairment
considerations and sensitivities required.
This proposed model aims to balance principles of asset recognition and long-term benefits
while also accounting for AR's unique attributes and risks. It provides a structured yet
flexible framework for management to apply. Regular reviews are paramount given AR
dynamics.
Accounting Software Solutions for AR
As AR investments grow, dedicated accounting software solutions are emerging to help
streamline the implementation of the proposed model:
- Specialized AR project management software and workflow tools integrate time tracking,
expense categorization and capitalization monitoring for AR campaigns across departments
and vendors. Automate data collection for subsequent financial reporting.
- Valuation modules help formally estimate the fair value of AR intangible assets through
discounted cash flow models capturing unique technological and revenue assumptions. Run
sensitivity analyses on AR forecasts and risks.
- Impairment modules trigger quantitative impairment tests annually or if indicators exist and
automatically calculate recoverable amounts. Potential write downs are automatically
journaled.
- Advanced amortization modules allocate the cost of AR intangible assets over their
estimated useful lives using straight-line or other methods as chosen by management.
- Dashboards and reports pull data from various modules to generate consolidated financial
statements, notes disclosures, and key operational metrics on AR investments tailored for
management and auditors.
The use of specialized accounting software can significantly enhance the consistency,
reliability and auditability of accounting for investments in AR while reducing manual
processes and judgement risks. Integration across AR technology and financial systems is key
to their effectiveness.
Conclusion
As AR advertising gains traction, recognizing and appropriately measuring related marketing
investments presents pressing challenges for financial reporting frameworks. While IFRS and
GAAP provide some overarching guidelines, they lack definitive principles specific to AR's
novel attributes and business models. This necessitates significant management judgement
and introduces reporting inconsistencies between entities.
This paper has proposed a high-level principles-based model for accounting for AR
investments encompassing recognition, measurement, impairment testing and amortization
considerations given technology and business evolution risks. It balances the need for
principles versus prescriptive rules. Robust disclosure is also emphasized.
Dedicated accounting software tools can efficiently operationalize such a model while
enhancing consistency, controls and auditability for AR campaign investments. As
technologies mature, frameworks may incorporate more definitive AR-specific guidance
informed by practices developed. Overall, navigating AR’s accounting requires specialized
knowledge and flexibility as new frontiers are explored.
Augmented reality (AR) is becoming an increasingly popular form of digital advertising and
marketing. Major brands and companies are investing heavily in AR technologies to engage
consumers in innovative new ways. However, accounting for investments in AR marketing
campaigns presents novel challenges due to the uniqueness of the technology and business
models involved. This paper will examine the key accounting issues surrounding the
recognition and measurement of investments in AR advertising from both an International
Financial Reporting Standards (IFRS) and Generally Accepted Accounting Principles
(GAAP) perspective.
What is Augmented Reality Advertising?
Augmented reality uses a combination of software and hardware like smartphones, tablets,
smart glasses etc. to overlay digital objects and information onto the real physical world in
real-time. In the context of advertising and marketing, AR enables brands to bring their
products and messaging to life in interactive and immersive new dimensions. Common
examples of AR advertising include:
- AR filters on social media platforms like Snapchat, Instagram and Facebook that place
virtual objects and assets into the camera view for users to interact with. Brands have created
AR lenses and filters promoting everything from movies to food products.
- AR mobile apps that allow users to point their phone camera at the real world and see
virtual 3D models of products they can interact with. Furniture brands allow people to
“place” sofas and beds in their living rooms for example.
- AR apps integrated with ecommerce sites that power virtual “try-on” experiences for
clothing, accessories, cosmetics and more using augmented cameras. Users can preview how
items will look before purchase.
- AR incorporated within live-streamed and prerecorded video content across platforms.
Viewers see brand messaging and experiences augmenting the real footage.
- AR activation zones at retail pop-ups, trade shows and events that unlock unique immersive
experiences for attendees through their mobile devices.
The goal of AR advertising is to create highly engaging and shareable brand interactions that
drive awareness, consideration and purchase. It aims to take advertising to a new interactive
dimension beyond static images and videos.
Accounting for AR Campaign Investments
From an accounting perspective, investments in AR marketing campaigns present novel
challenges due to the lack of definitive guidance and precedence in existing frameworks.
Some of the key issues that must be addressed include:
- Identifying and defining the nature of costs incurred - Are they marketing costs,
development costs, intangible asset costs?
- Timing of recognition - Should costs be expensed as incurred or capitalized for future
periods?
- Measurement of value - How should the “value” of AR campaigns and their potential future
benefits be assessed and represented on the balance sheet?
- Impairment assessment - At what point should the value of capitalized AR investments be
written down if expected benefits fail to materialize?
- amortization period - Over what time period should capitalized costs be allocated (if at all)?
AR technologies and user preferences evolve rapidly.
These challenges stem from the fact that AR represents an emerging technology, business
models are still evolving and there is uncertainty around user adoption and ROI
quantification. Both IFRS and GAAP provide some relevant guidance but lack definitive
rules.
IFRS Perspective
Under International Accounting Standard (IAS) 38 - Intangible Assets, costs associated with
AR campaigns could potentially be classified and accounted for as:
- Research costs - Expensed as incurred as they do not meet the definition of an intangible
asset. Includes general investigation and concept development activities.
- Development costs - Potentially capitalized if they meet specific criteria. Must demonstrate
technical feasibility to completion, intent and ability to use/sell, expenditures identifiable and
reliably measured. Capitalized as an intangible development asset.
- Marketing costs - Normally expensed unless they are directly attributable to
advertising/promoting intangible assets that meet the definition and recognition criteria of
IAS 38 before they are available for use.
However, as AR technology is still emerging, it may be difficult to clearly distinguish
research from development activities or demonstrate an intangible asset has been created per
IAS 38 criteria. Significant management judgment is required.
IFRS provides no definitive guidance around impairment testing or amortization periods for
intangible assets either. Companies would have to use reasonable estimates and assumptions
considering AR's unique characteristics and rapid evolution. Overall, IFRS principles leave
room for interpretation and lack definitive rules for AR investments.
GAAP Perspective
Similarly under US GAAP, the accounting treatment of AR campaign costs under ASC 350-
40 (Internal-Use Software), ASC 720-15 (Advertising Costs) or ASC 985-20 (Costs of
Software to be Sold, Leased or Marketed) would depend on which definition and
capitalization criteria the costs meet, if any.
Some key distinctions from IFRS include:
- Internal use software costs can be capitalized only after completion of the "preliminary
project stage". For AR this may be difficult to define.
- Advertising costs are expensed unless they meet requirements of ASC 720-35 to be
capitalized as "direct-response advertising". Requires demonstrated ability to bring future
economic benefits.
- Software costs capitalized per ASC 985-20 have more definitive future economic benefits
requirements vs. IAS 38. Still challenging to apply to AR due to uncertainties.
- Amortization guidance suggests useful lives not exceeding 3 years which likely do not
reflect AR investment lifecycles and rapid evolution.
Overall, GAAP is more rules-based than IFRS but similarly lacks definitive principles for
recognition and measurement of AR costs given its unique nature and business models.
Significant judgment is still required by management. Both frameworks provide flexibility
that can impact financial reporting.
Proposed Accounting Model for AR Investments
Given the lack of explicit guidance in IFRS and GAAP, this paper proposes the following
principles-based approach for accounting for investments in AR marketing campaigns:
Recognition:
- Early stage "research" costs which do not meet the definition of an asset should be expensed
- All other material costs which are directly attributable to developing identifiable AR
technical platforms, content, activations etc. that are controlled by the entity should be
capitalized as intangible development assets.
- Careful consideration of what constitutes "development" vs. "marketing" required given
blurred lines for AR. Non-marketing costs should meet IAS 38/GAAP capitalization criteria.
Measurement:
- Fair value (value in use) of capitalized intangible assets should be estimated using
discounted projected cash flows from AR campaigns factoring in technological/user behavior
risks given rapid evolution.
- Impairment testing required annually or if indicators exist. Write down value if exceeds
recoverable amount estimated using similar fair value approach.
Amortization:
- Straight-line over estimated useful economic life of 3-5 years max reflecting rapid AR
changes. Regular reviews of useful life required.
- Accelerated amortization if usage/outcomes fall below expectations to timely write down
value.
Disclosure:
- Robust disclosure of accounting policies for AR intangibles, judgments, impairment
considerations and sensitivities required.
This proposed model aims to balance principles of asset recognition and long-term benefits
while also accounting for AR's unique attributes and risks. It provides a structured yet
flexible framework for management to apply. Regular reviews are paramount given AR
dynamics.
Accounting Software Solutions for AR
As AR investments grow, dedicated accounting software solutions are emerging to help
streamline the implementation of the proposed model:
- Specialized AR project management software and workflow tools integrate time tracking,
expense categorization and capitalization monitoring for AR campaigns across departments
and vendors. Automate data collection for subsequent financial reporting.
- Valuation modules help formally estimate the fair value of AR intangible assets through
discounted cash flow models capturing unique technological and revenue assumptions. Run
sensitivity analyses on AR forecasts and risks.
- Impairment modules trigger quantitative impairment tests annually or if indicators exist and
automatically calculate recoverable amounts. Potential write downs are automatically
journaled.
- Advanced amortization modules allocate the cost of AR intangible assets over their
estimated useful lives using straight-line or other methods as chosen by management.
- Dashboards and reports pull data from various modules to generate consolidated financial
statements, notes disclosures, and key operational metrics on AR investments tailored for
management and auditors.
The use of specialized accounting software can significantly enhance the consistency,
reliability and auditability of accounting for investments in AR while reducing manual
processes and judgement risks. Integration across AR technology and financial systems is key
to their effectiveness.
Conclusion
As AR advertising gains traction, recognizing and appropriately measuring related marketing
investments presents pressing challenges for financial reporting frameworks. While IFRS and
GAAP provide some overarching guidelines, they lack definitive principles specific to AR's
novel attributes and business models. This necessitates significant management judgement
and introduces reporting inconsistencies between entities.
This paper has proposed a high-level principles-based model for accounting for AR
investments encompassing recognition, measurement, impairment testing and amortization
considerations given technology and business evolution risks. It balances the need for
principles versus prescriptive rules. Robust disclosure is also emphasized.
Dedicated accounting software tools can efficiently operationalize such a model while
enhancing consistency, controls and auditability for AR campaign investments. As
technologies mature, frameworks may incorporate more definitive AR-specific guidance
informed by practices developed. Overall, navigating AR’s accounting requires specialized
knowledge and flexibility as new frontiers are explored.
Augmented reality (AR) is becoming an increasingly popular form of digital advertising and
marketing. Major brands and companies are investing heavily in AR technologies to engage
consumers in innovative new ways. However, accounting for investments in AR marketing
campaigns presents novel challenges due to the uniqueness of the technology and business
models involved. This paper will examine the key accounting issues surrounding the
recognition and measurement of investments in AR advertising from both an International
Financial Reporting Standards (IFRS) and Generally Accepted Accounting Principles
(GAAP) perspective.
What is Augmented Reality Advertising?
Augmented reality uses a combination of software and hardware like smartphones, tablets,
smart glasses etc. to overlay digital objects and information onto the real physical world in
real-time. In the context of advertising and marketing, AR enables brands to bring their
products and messaging to life in interactive and immersive new dimensions. Common
examples of AR advertising include:
- AR filters on social media platforms like Snapchat, Instagram and Facebook that place
virtual objects and assets into the camera view for users to interact with. Brands have created
AR lenses and filters promoting everything from movies to food products.
- AR mobile apps that allow users to point their phone camera at the real world and see
virtual 3D models of products they can interact with. Furniture brands allow people to
“place” sofas and beds in their living rooms for example.
- AR apps integrated with ecommerce sites that power virtual “try-on” experiences for
clothing, accessories, cosmetics and more using augmented cameras. Users can preview how
items will look before purchase.
- AR incorporated within live-streamed and prerecorded video content across platforms.
Viewers see brand messaging and experiences augmenting the real footage.
- AR activation zones at retail pop-ups, trade shows and events that unlock unique immersive
experiences for attendees through their mobile devices.
The goal of AR advertising is to create highly engaging and shareable brand interactions that
drive awareness, consideration and purchase. It aims to take advertising to a new interactive
dimension beyond static images and videos.
Accounting for AR Campaign Investments
From an accounting perspective, investments in AR marketing campaigns present novel
challenges due to the lack of definitive guidance and precedence in existing frameworks.
Some of the key issues that must be addressed include:
- Identifying and defining the nature of costs incurred - Are they marketing costs,
development costs, intangible asset costs?
- Timing of recognition - Should costs be expensed as incurred or capitalized for future
periods?
- Measurement of value - How should the “value” of AR campaigns and their potential future
benefits be assessed and represented on the balance sheet?
- Impairment assessment - At what point should the value of capitalized AR investments be
written down if expected benefits fail to materialize?
- amortization period - Over what time period should capitalized costs be allocated (if at all)?
AR technologies and user preferences evolve rapidly.
These challenges stem from the fact that AR represents an emerging technology, business
models are still evolving and there is uncertainty around user adoption and ROI
quantification. Both IFRS and GAAP provide some relevant guidance but lack definitive
rules.
IFRS Perspective
Under International Accounting Standard (IAS) 38 - Intangible Assets, costs associated with
AR campaigns could potentially be classified and accounted for as:
- Research costs - Expensed as incurred as they do not meet the definition of an intangible
asset. Includes general investigation and concept development activities.
- Development costs - Potentially capitalized if they meet specific criteria. Must demonstrate
technical feasibility to completion, intent and ability to use/sell, expenditures identifiable and
reliably measured. Capitalized as an intangible development asset.
- Marketing costs - Normally expensed unless they are directly attributable to
advertising/promoting intangible assets that meet the definition and recognition criteria of
IAS 38 before they are available for use.
However, as AR technology is still emerging, it may be difficult to clearly distinguish
research from development activities or demonstrate an intangible asset has been created per
IAS 38 criteria. Significant management judgment is required.
IFRS provides no definitive guidance around impairment testing or amortization periods for
intangible assets either. Companies would have to use reasonable estimates and assumptions
considering AR's unique characteristics and rapid evolution. Overall, IFRS principles leave
room for interpretation and lack definitive rules for AR investments.
GAAP Perspective
Similarly under US GAAP, the accounting treatment of AR campaign costs under ASC 350-
40 (Internal-Use Software), ASC 720-15 (Advertising Costs) or ASC 985-20 (Costs of
Software to be Sold, Leased or Marketed) would depend on which definition and
capitalization criteria the costs meet, if any.
Some key distinctions from IFRS include:
- Internal use software costs can be capitalized only after completion of the "preliminary
project stage". For AR this may be difficult to define.
- Advertising costs are expensed unless they meet requirements of ASC 720-35 to be
capitalized as "direct-response advertising". Requires demonstrated ability to bring future
economic benefits.
- Software costs capitalized per ASC 985-20 have more definitive future economic benefits
requirements vs. IAS 38. Still challenging to apply to AR due to uncertainties.
- Amortization guidance suggests useful lives not exceeding 3 years which likely do not
reflect AR investment lifecycles and rapid evolution.
Overall, GAAP is more rules-based than IFRS but similarly lacks definitive principles for
recognition and measurement of AR costs given its unique nature and business models.
Significant judgment is still required by management. Both frameworks provide flexibility
that can impact financial reporting.
Proposed Accounting Model for AR Investments
Given the lack of explicit guidance in IFRS and GAAP, this paper proposes the following
principles-based approach for accounting for investments in AR marketing campaigns:
Recognition:
- Early stage "research" costs which do not meet the definition of an asset should be expensed
- All other material costs which are directly attributable to developing identifiable AR
technical platforms, content, activations etc. that are controlled by the entity should be
capitalized as intangible development assets.
- Careful consideration of what constitutes "development" vs. "marketing" required given
blurred lines for AR. Non-marketing costs should meet IAS 38/GAAP capitalization criteria.
Measurement:
- Fair value (value in use) of capitalized intangible assets should be estimated using
discounted projected cash flows from AR campaigns factoring in technological/user behavior
risks given rapid evolution.
- Impairment testing required annually or if indicators exist. Write down value if exceeds
recoverable amount estimated using similar fair value approach.
Amortization:
- Straight-line over estimated useful economic life of 3-5 years max reflecting rapid AR
changes. Regular reviews of useful life required.
- Accelerated amortization if usage/outcomes fall below expectations to timely write down
value.
Disclosure:
- Robust disclosure of accounting policies for AR intangibles, judgments, impairment
considerations and sensitivities required.
This proposed model aims to balance principles of asset recognition and long-term benefits
while also accounting for AR's unique attributes and risks. It provides a structured yet
flexible framework for management to apply. Regular reviews are paramount given AR
dynamics.
Accounting Software Solutions for AR
As AR investments grow, dedicated accounting software solutions are emerging to help
streamline the implementation of the proposed model:
- Specialized AR project management software and workflow tools integrate time tracking,
expense categorization and capitalization monitoring for AR campaigns across departments
and vendors. Automate data collection for subsequent financial reporting.
- Valuation modules help formally estimate the fair value of AR intangible assets through
discounted cash flow models capturing unique technological and revenue assumptions. Run
sensitivity analyses on AR forecasts and risks.
- Impairment modules trigger quantitative impairment tests annually or if indicators exist and
automatically calculate recoverable amounts. Potential write downs are automatically
journaled.
- Advanced amortization modules allocate the cost of AR intangible assets over their
estimated useful lives using straight-line or other methods as chosen by management.
- Dashboards and reports pull data from various modules to generate consolidated financial
statements, notes disclosures, and key operational metrics on AR investments tailored for
management and auditors.
The use of specialized accounting software can significantly enhance the consistency,
reliability and auditability of accounting for investments in AR while reducing manual
processes and judgement risks. Integration across AR technology and financial systems is key
to their effectiveness.
Conclusion
As AR advertising gains traction, recognizing and appropriately measuring related marketing
investments presents pressing challenges for financial reporting frameworks. While IFRS and
GAAP provide some overarching guidelines, they lack definitive principles specific to AR's
novel attributes and business models. This necessitates significant management judgement
and introduces reporting inconsistencies between entities.
This paper has proposed a high-level principles-based model for accounting for AR
investments encompassing recognition, measurement, impairment testing and amortization
considerations given technology and business evolution risks. It balances the need for
principles versus prescriptive rules. Robust disclosure is also emphasized.
Dedicated accounting software tools can efficiently operationalize such a model while
enhancing consistency, controls and auditability for AR campaign investments. As
technologies mature, frameworks may incorporate more definitive AR-specific guidance
informed by practices developed. Overall, navigating AR’s accounting requires specialized
knowledge and flexibility as new frontiers are explored.
Augmented reality (AR) is becoming an increasingly popular form of digital advertising and
marketing. Major brands and companies are investing heavily in AR technologies to engage
consumers in innovative new ways. However, accounting for investments in AR marketing
campaigns presents novel challenges due to the uniqueness of the technology and business
models involved. This paper will examine the key accounting issues surrounding the
recognition and measurement of investments in AR advertising from both an International
Financial Reporting Standards (IFRS) and Generally Accepted Accounting Principles
(GAAP) perspective.
What is Augmented Reality Advertising?
Augmented reality uses a combination of software and hardware like smartphones, tablets,
smart glasses etc. to overlay digital objects and information onto the real physical world in
real-time. In the context of advertising and marketing, AR enables brands to bring their
products and messaging to life in interactive and immersive new dimensions. Common
examples of AR advertising include:
- AR filters on social media platforms like Snapchat, Instagram and Facebook that place
virtual objects and assets into the camera view for users to interact with. Brands have created
AR lenses and filters promoting everything from movies to food products.
- AR mobile apps that allow users to point their phone camera at the real world and see
virtual 3D models of products they can interact with. Furniture brands allow people to
“place” sofas and beds in their living rooms for example.
- AR apps integrated with ecommerce sites that power virtual “try-on” experiences for
clothing, accessories, cosmetics and more using augmented cameras. Users can preview how
items will look before purchase.
- AR incorporated within live-streamed and prerecorded video content across platforms.
Viewers see brand messaging and experiences augmenting the real footage.
- AR activation zones at retail pop-ups, trade shows and events that unlock unique immersive
experiences for attendees through their mobile devices.
The goal of AR advertising is to create highly engaging and shareable brand interactions that
drive awareness, consideration and purchase. It aims to take advertising to a new interactive
dimension beyond static images and videos.
Accounting for AR Campaign Investments
From an accounting perspective, investments in AR marketing campaigns present novel
challenges due to the lack of definitive guidance and precedence in existing frameworks.
Some of the key issues that must be addressed include:
- Identifying and defining the nature of costs incurred - Are they marketing costs,
development costs, intangible asset costs?
- Timing of recognition - Should costs be expensed as incurred or capitalized for future
periods?
- Measurement of value - How should the “value” of AR campaigns and their potential future
benefits be assessed and represented on the balance sheet?
- Impairment assessment - At what point should the value of capitalized AR investments be
written down if expected benefits fail to materialize?
- amortization period - Over what time period should capitalized costs be allocated (if at all)?
AR technologies and user preferences evolve rapidly.
These challenges stem from the fact that AR represents an emerging technology, business
models are still evolving and there is uncertainty around user adoption and ROI
quantification. Both IFRS and GAAP provide some relevant guidance but lack definitive
rules.
IFRS Perspective
Under International Accounting Standard (IAS) 38 - Intangible Assets, costs associated with
AR campaigns could potentially be classified and accounted for as:
- Research costs - Expensed as incurred as they do not meet the definition of an intangible
asset. Includes general investigation and concept development activities.
- Development costs - Potentially capitalized if they meet specific criteria. Must demonstrate
technical feasibility to completion, intent and ability to use/sell, expenditures identifiable and
reliably measured. Capitalized as an intangible development asset.
- Marketing costs - Normally expensed unless they are directly attributable to
advertising/promoting intangible assets that meet the definition and recognition criteria of
IAS 38 before they are available for use.
However, as AR technology is still emerging, it may be difficult to clearly distinguish
research from development activities or demonstrate an intangible asset has been created per
IAS 38 criteria. Significant management judgment is required.
IFRS provides no definitive guidance around impairment testing or amortization periods for
intangible assets either. Companies would have to use reasonable estimates and assumptions
considering AR's unique characteristics and rapid evolution. Overall, IFRS principles leave
room for interpretation and lack definitive rules for AR investments.
GAAP Perspective
Similarly under US GAAP, the accounting treatment of AR campaign costs under ASC 350-
40 (Internal-Use Software), ASC 720-15 (Advertising Costs) or ASC 985-20 (Costs of
Software to be Sold, Leased or Marketed) would depend on which definition and
capitalization criteria the costs meet, if any.
Some key distinctions from IFRS include:
- Internal use software costs can be capitalized only after completion of the "preliminary
project stage". For AR this may be difficult to define.
- Advertising costs are expensed unless they meet requirements of ASC 720-35 to be
capitalized as "direct-response advertising". Requires demonstrated ability to bring future
economic benefits.
- Software costs capitalized per ASC 985-20 have more definitive future economic benefits
requirements vs. IAS 38. Still challenging to apply to AR due to uncertainties.
- Amortization guidance suggests useful lives not exceeding 3 years which likely do not
reflect AR investment lifecycles and rapid evolution.
Overall, GAAP is more rules-based than IFRS but similarly lacks definitive principles for
recognition and measurement of AR costs given its unique nature and business models.
Significant judgment is still required by management. Both frameworks provide flexibility
that can impact financial reporting.
Proposed Accounting Model for AR Investments
Given the lack of explicit guidance in IFRS and GAAP, this paper proposes the following
principles-based approach for accounting for investments in AR marketing campaigns:
Recognition:
- Early stage "research" costs which do not meet the definition of an asset should be expensed
- All other material costs which are directly attributable to developing identifiable AR
technical platforms, content, activations etc. that are controlled by the entity should be
capitalized as intangible development assets.
- Careful consideration of what constitutes "development" vs. "marketing" required given
blurred lines for AR. Non-marketing costs should meet IAS 38/GAAP capitalization criteria.
Measurement:
- Fair value (value in use) of capitalized intangible assets should be estimated using
discounted projected cash flows from AR campaigns factoring in technological/user behavior
risks given rapid evolution.
- Impairment testing required annually or if indicators exist. Write down value if exceeds
recoverable amount estimated using similar fair value approach.
Amortization:
- Straight-line over estimated useful economic life of 3-5 years max reflecting rapid AR
changes. Regular reviews of useful life required.
- Accelerated amortization if usage/outcomes fall below expectations to timely write down
value.
Disclosure:
- Robust disclosure of accounting policies for AR intangibles, judgments, impairment
considerations and sensitivities required.
This proposed model aims to balance principles of asset recognition and long-term benefits
while also accounting for AR's unique attributes and risks. It provides a structured yet
flexible framework for management to apply. Regular reviews are paramount given AR
dynamics.
Accounting Software Solutions for AR
As AR investments grow, dedicated accounting software solutions are emerging to help
streamline the implementation of the proposed model:
- Specialized AR project management software and workflow tools integrate time tracking,
expense categorization and capitalization monitoring for AR campaigns across departments
and vendors. Automate data collection for subsequent financial reporting.
- Valuation modules help formally estimate the fair value of AR intangible assets through
discounted cash flow models capturing unique technological and revenue assumptions. Run
sensitivity analyses on AR forecasts and risks.
- Impairment modules trigger quantitative impairment tests annually or if indicators exist and
automatically calculate recoverable amounts. Potential write downs are automatically
journaled.
- Advanced amortization modules allocate the cost of AR intangible assets over their
estimated useful lives using straight-line or other methods as chosen by management.
- Dashboards and reports pull data from various modules to generate consolidated financial
statements, notes disclosures, and key operational metrics on AR investments tailored for
management and auditors.
The use of specialized accounting software can significantly enhance the consistency,
reliability and auditability of accounting for investments in AR while reducing manual
processes and judgement risks. Integration across AR technology and financial systems is key
to their effectiveness.
Conclusion
As AR advertising gains traction, recognizing and appropriately measuring related marketing
investments presents pressing challenges for financial reporting frameworks. While IFRS and
GAAP provide some overarching guidelines, they lack definitive principles specific to AR's
novel attributes and business models. This necessitates significant management judgement
and introduces reporting inconsistencies between entities.
This paper has proposed a high-level principles-based model for accounting for AR
investments encompassing recognition, measurement, impairment testing and amortization
considerations given technology and business evolution risks. It balances the need for
principles versus prescriptive rules. Robust disclosure is also emphasized.
Dedicated accounting software tools can efficiently operationalize such a model while
enhancing consistency, controls and auditability for AR campaign investments. As
technologies mature, frameworks may incorporate more definitive AR-specific guidance
informed by practices developed. Overall, navigating AR’s accounting requires specialized
knowledge and flexibility as new frontiers are explored.
