FASB simplifies accounting for cloud computing service costs

By Ken Tysiac

FASB issued a new standard Wednesday that is designed to reduce complexity for the accounting for costs of implementing a cloud computing service arrangement.

The guidance is published in Accounting Standards Update No. 2018-15, Intangibles — Goodwill and Other — Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Service Arrangement That Is a Service Contract. The standard is based on a consensus of FASB’s Emerging Issues Task Force.

The standard aligns 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 amendments do not affect the accounting for the service element of a hosting arrangement that is a service contract.

FASB Chairman Russell Golden said in a news release that existing U.S. GAAP resulted in unnecessary complexity and needed to be updated to reflect emerging transactions in cloud computing arrangements.

“To address this diversity in practice, this standard aligns the accounting for implementation costs of hosting arrangements — regardless of whether they convey a license to the hosted software,” Golden said.

For public business entities, the changes take effect for fiscal years beginning after Dec. 15, 2019, and interim periods within those fiscal years. For all other entities, the amendments take effect for annual reporting periods beginning after Dec. 15, 2020, and interim periods within annual periods beginning after Dec. 15, 2021.

Early adoption is permitted, including adoption in any interim period.

Ken Tysiac (Kenneth.Tysiac@aicpa-cima.com) is the JofA’s editorial director.

Where to find December’s flipbook issue

The Journal of Accountancy is now completely digital. 

 

 

 

SPONSORED REPORT

Get Clients Ready for Tax Season

This comprehensive report looks at the changes to the child tax credit, earned income tax credit, and child and dependent care credit caused by the expiration of provisions in the American Rescue Plan Act; the ability e-file more returns in the Form 1040 series; automobile mileage deductions; the alternative minimum tax; gift tax exemptions; strategies for accelerating or postponing income and deductions; and retirement and estate planning.