Costs of boarding portfolios, data migration and mobilisation for a servicing mandate

Winning a large mandate can require months of mobilisation: data migration contractors, a dedicated boarding team, temporary staff, file imaging and borrower communication campaigns. Expensing everything depresses results in the year the mandate starts and then flatters later years; capitalising everything, including general training and overheads, overstates assets. Only costs that relate directly to the specific mandate, create resources used to service it and are expected to be recovered qualify as a contract fulfilment asset, which is then amortised and tested for impairment against the remaining fees.

Is the cost within the scope of another standard first (platform software or licences under the intangible assets standard, equipment under the property, plant and equipment standard)? Does it relate directly to an identified mandate or a specific anticipated mandate, rather than to the servicer's general capability? Does it generate or enhance resources that will be used to satisfy servicing obligations in the future (for example a migrated and validated loan database), rather than relate to obligations already satisfied? Is it expected to be recovered from the remaining fees, including any boarding fee received? Would it have been incurred anyway, such as general administration, training or wasted costs from failed migration attempts?

1. Exclude costs covered by other standards (software development, licences, hardware) and account for them under those standards.
2. For each remaining cost, test the three capitalisation criteria: it relates directly to the mandate; it generates or enhances resources used in satisfying future performance obligations; it is expected to be recovered.
3. Capitalise qualifying costs such as external data migration fees, direct labour of staff assigned to the mandate boarding, and file imaging for that portfolio.
4. Expense general and administrative costs not explicitly chargeable to the financier, wasted materials or labour, costs that relate to services already performed, and costs that cannot be distinguished between past and future performance.
5. Amortise the asset on a systematic basis consistent with the transfer of servicing, normally straight-line over the expected mandate term including specifically anticipated renewals.
6. At each reporting date, compare the carrying amount with the remaining consideration expected to be received less the costs still to be incurred directly to provide the servicing; recognise any excess as an impairment loss.
7. Reverse an impairment only when conditions improve, up to the carrying amount that would have existed without impairment.

Measure the asset at the qualifying costs incurred. Amortise over the period the servicing is expected to be provided, which may exceed the initial contract term if a renewal is specifically anticipated and would not require repeating the work. For impairment, the remaining consideration includes amounts already received but not yet recognised as revenue (for example an unamortised boarding fee) and amounts expected to be received, adjusted for the effects of the customer's credit risk; the deduction is the directly related costs still to be incurred.

Disclose: (1) the closing balance of assets recognised from costs to fulfil contracts, by main category; (2) amortisation and any impairment loss recognised in the period; (3) the judgments made in determining which costs qualify and the amortisation method and period; (4) the accounting policy, including any separate treatment of boarding costs within other standards.

• Capitalising general staff training, recruitment and management overheads as boarding costs
• capitalising software development or platform licences as contract costs instead of applying the intangible assets standard
• expensing clearly qualifying external data migration fees because the mandate has a separate boarding fee
• amortising over a period longer than the expected servicing without evidence of anticipated renewal
• omitting the impairment test when a financier reduces the portfolio or signals termination
• capitalising rework costs caused by the servicer'
• s own migration errors.