FASB proposes simpler accounting for fees paid to cloud service providers

BY KEN TYSIAC
August 20, 2014

FASB on Tuesday issued a proposal designed to simplify the accounting for fees that public and private companies pay as customers in cloud-computing arrangements with third-party service providers.

Rules exist under current GAAP addressing the accounting for cloud service providers. But there is no explicit accounting guidance under GAAP about how a customer should account for fees paid to the cloud service provider.

This lack of guidance can lead to unnecessary cost and complexity during the evaluation of how to account for those fees, as well as diversity in practice.

The proposed Accounting Standards Update, Intangibles—Goodwill and Other—Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Fees Paid in a Cloud Computing Arrangement, would give customers guidance according to whether a cloud-computing arrangement includes a software license:

  • If the cloud-computing arrangement includes a software license, the customer would account for it in a manner consistent with accounting for other software licenses.
  • If no software license is included in the cloud-computing arrangement, the customer would account for the arrangement as a service contract.


Existing GAAP for customers’ accounting for software licenses or service contracts would not change under the proposal.

The proposal is part of FASB’s simplification initiative, which aims to find expedited solutions to narrowly focused concerns about U.S. GAAP. FASB is accepting comments on the proposal at its website. The deadline for comments is Nov. 18.

If approved, the proposal would take effect for public companies in annual periods and interim periods within those annual periods, beginning after Dec. 15, 2015. It would take effect for private companies and not-for-profits for annual periods beginning after Dec. 15, 2015, and for interim periods beginning after Dec. 15, 2016.

Organizations would elect to adopt the proposed changes either prospectively to all cloud-computing arrangements entered into or materially modified after the effective date—or adopt them retrospectively. Early adoption would be permitted.

Ken Tysiac ( ktysiac@aicpa.org ) is a JofA editorial director.

PROFESSIONAL DEVELOPMENT: EARLY CAREER

Making manager: The key to accelerating your career

Being promoted to manager is a key development in a young public accountant’s career. Here’s what CPAs need to learn to land that promotion.

PROFESSIONAL DEVELOPMENT: MIDDLE CAREER

Motivation and preparation can pave the path to CFO

CPAs in business and industry face intense competition to land a coveted CFO job. Learn how to best prepare yourself for the role.

PROFESSIONAL DEVELOPMENT: LATE CAREER

Second act: Consulting

CPAs are using experience to carve out late-career niches. Learn how to successfully make a late-career transition to consulting, from CPAs who have done it.