The 5HITS

Search Engine rankings and value

Search engines allow users to find products, services or information. This is also known as search based intent. Given search engines are around 24% of traffic to websites on average (Hitwise) this is valuable traffic to most websites.

Organic search engine rankings cannot be bought but rely on the quality of your website, website content and linking. To rank well for competitive terms can take some investment not only in internal resources but also external search engine optimisation consultants.

The potential return on this investment is high, as high search engine rankings for popular keywords will drive trafficwith the potnetial to convert. Search engine rankings thus have a value to the organisation. Not only do they provide ongoing traffic and potential customers, they also assist in the organisational branding and visibility, as good search engine rankings usually perceived as belonging to quality websites and organisations.

As with any asset, to maintain high search engine rankings requires maintenance. Like any asset, the rankings can be impacted by internal constraints, competitors and search engine algorithms. As with assets, they can become obsolete, damaged or destroyed by “Acts of God” or search engines.

So undeniably, there is effort, cost and knowledge development from which an asset results, which also results in ongoing benefits to the organisation. The asset, being search engine rankings and the ongoing benefit being traffic to the organisation website. So should the cost of achieving high search engine rankings be capitalised and considered as an asset in an entity’s balance sheet.

Australian Accounting Standards

Firstly, make sure you have a way to measure your search engine rankings, and secondly before making any decisions speak to your accountant and/ or auditor on this matter.

Where to start? The accounting standards administered by the Institute of Chartered Accountants obviously.

AASB116 – Assets

AASB116 deals with fixed assets, plant and equipment and in the definition includes the word “tangible”. Search engine rankings could not be described as tangible.

AASB 138 – Intangible Assets

AASB 138 deals with intangible assets. Per section 3 (a) – (h), search engine rankings are not excluded by definition, as they are not held for resale, do not result from goodwill or meet any of the other criteria. I also doubt it could be considered part of computer software and integral to any computers, as the Index belongs to the search engines, and resides on their servers.

Specifically stated is that this standard applies to expenditure on advertising, start-up and research and development of which the physical nature is secondary to the knowledge embodied. Search engine optimisation is unique for each organisation and will result in the embodiment of search engine optimisation knowledge.

Per AASB138 however an asset must be capable of being separated or divided from the entity and capable of being sold, licensed, exchanged or rented.

Search engine optimisation or SEO is directly related to the website and domain. They are mutually exclusive and cannot survive without one another. So the consideration must move to the website, which is where search engine optimisation is embodied.

Further can the rankings be separated from the website, absolutely not, they are one and the same.

Interpretation 132 – Websites

This matter has however come up before in a round about way. Consider Interpretation 132, relating to websites.

“An entity’s own web site that arises from development and is for internal or external access is an internally generated intangible asset that is subject to the requirements of AASB 138”

Interpretation 132 also says this website must comply with AASB 138.21 and AASB 138.57 and in particular be able to satisfy how it will generate future economic benefits. A website solely for promoting and advertising its own products may not be able to demonstrate this.

Further guidance is given in the Appendix of Interpretation 132 where it states that the Operating stage may include the submission of the website to search engines. This is the closest to search engine optimisation seen but still not quite there, and refers to 138.18 for capitalization requirements. The remaining efforts of search engine optimisation fall within the various stages identified in Appendix 1 of website development and which rely on 138.21 and 138.57

AASB 138.21 – Intangible Assets

Requires that future economic benefits will flow to the entity and that cost is measurable. High search engine rankings will result in quality traffic to the website which in turn will bring economic benefit. If external consultants are used, the cost is definitely measurable.

AASB138.57 – Intangible Asset Attributes

Requires that an intangible asset arising from the development or the development phase of an internal project must be able to demonstrate all the following attributes:

· technical feasibility

· the intention is to complete the development and use it

· that the intangible asset will be used

· that economic benefit will be derived

· the availability of adequate technical and financial resources to complete

· the ability to measure the expenditure during development.

With respect to search engine optimisation, organisations invest in this process to get future economic benefit and making the necessary changes to the website to achieve these rankings is in the majority of cases technically feasible. The entity will also most definitely get the use of these rankings through additional traffic to the website and through internal costing systems or using external consultants, the cost is generally measurable.

Conclusion

On the face of it then it would then appear that the cost of search engine optimisation efforts should be capitalised along with website development costs.

If the entity website is considered to be pure brochure ware with little or no functionality or ability to generate revenue one might argue that the entity cannot capitalise costs, but one might counter argue that the ability to generate leads is a benefit. In most cases however this argument is mute, as organisations ready to invest in search engine optimisation have websites capable of taking orders and generating economic future benefit.

And don’t forget, before making a final decision speak to your accountant and/ or auditor, send them a link to this article.