FASB proposes improvements to accounting for costs of implementation activities performed in certain cloud computing arrangements

Written on Mar 08, 2018

FASB has issued a proposed Accounting Standards Update (ASU) that would clarify the accounting for implementation costs related to a cloud computing arrangement that is a service contract. The proposed ASU also would enhance disclosures around implementation costs for internal-use software and cloud computing arrangements. Stakeholders are encouraged to review and provide comment on the proposal by April 30, 2018.

In April 2015, FASB issued Accounting Standards Update No. 2015-05, Intangibles—Goodwill and Other—Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Fees Paid in a Cloud Computing Arrangement, to help companies evaluate the accounting for fees paid by a customer in a cloud computing arrangement (hosting arrangement) by providing guidance for determining when the arrangement includes a software license.

During the comment period and after the issuance of the standard, several stakeholders asked the FASB to provide additional guidance on the accounting for costs of implementation activities performed in a cloud computing arrangement that is a service contract. Because existing guidance is not explicit in that area, the FASB decided to issue this proposed ASU to address the resulting diversity in practice.

The amendments in this proposed ASU would align the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software (and hosting arrangements that include an internal-use software license). The accounting for the service element of a hosting arrangement that is a service contract would not be affected by the proposed amendments.

The amendments in this proposed ASU also would require an organization to disclose certain qualitative and quantitative information about implementation costs associated with internal-use software and all hosting arrangements, not just hosting arrangements that are service contracts.

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