FASB Task Force Tackles Cloud Computing Costs

Published February 21, 2018

The Financial Accounting Standards Board’s Emerging Issues Task Force plans to propose new rules for how to deal with cloud computing service costs. 

At a meeting last week, the EITF discussed how to account for implementation, setup, and other upfront costs incurred in cloud computing arrangements that are service contracts. They decided to propose an accounting standards update that will be issued in the next few weeks about the topic. 

Under the proposed guidance, a customer in such service contracts would look to the existing guidance on internal-use software to determine which implementation costs to recognize as an asset. The EITF members also decided that implementation costs that are recognized as an asset should be expensed over the term of the hosting arrangement. The term of the hosting arrangement would be the non-cancellable period of the arrangement along with certain periods covered by options to renew (or not to terminate) the arrangement. 

The expense related to the capitalized implementation costs would be presented in the same financial statement line item as the hosting fees. A customer would provide certain qualitative and quantitative disclosures. Those disclosures also would apply to implementation costs incurred for internal-use software. 

The EITF members also decided on several other aspects of the proposed standard, such as analogies, transition, and transition disclosures, plus they discussed other items, such as the scope of the proposed guidance.

(Source: AccountingToday - Daily Edition - January 26, 2018)