FASB Proposes Changes in Accounting for Cloud Computing Costs

Published on March 29, 2018

The Financial Accounting Standards Board issued a proposed accounting standards update aimed at improving how to account for the costs of implementing cloud computing.

The proposed update would specifically clarify the accounting for implementation costs related to a cloud computing arrangement that is a service contract. It also would provide more disclosures of the implementation costs for internal-use software and cloud computing arrangements.

Back in 2015, FASB issued an accounting standards updateto help businesses account for the fees paid by a customer in a cloud computing or hosting arrangement, offering guidance on determining when the arrangement includes a software license. During the comment period and after the standard was issued, FASB received requests for further guidance on accounting for the costs of implementation activities in a cloud computing arrangement that’s a service contract. The existing guidance wasn’t explicit on that subject, so FASB has decided to propose an accounting standards update to clear up the differences in how the 2015 update was being used in practice.

The amendments in the proposed update would align the requirements for capitalizing implementation costs incurred in a hosting arrangement that’s a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software (along with hosting arrangements that include an internal-use software license). The accounting for the service element of a hosting arrangement that’s a service contract wouldn’t be affected by the proposed changes.

The proposed amendments would also require a company to disclose some quantitative and qualitative information about implementation costs that are associated with internal-use software along with all hosting arrangements, not only the hosting arrangements that are service contracts.

 FASB is asking for comments on the proposal by April 30, 2018.

(Source: AccountingTechnology - March 2, 2018)