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.

SPONSORED REPORT

Scorecard preparation templates and tips

With Workiva, we've created a PowerPoint deck that helps you create your own scorecards -- quick reference reports used across organizations to update stakeholders on the performance of defined deliverables.

100th ANNIVERSARY

Black CPA Centennial, 1921–2021

With 2021 marking the 100th anniversary of the first Black licensed CPA in the United States, a yearlong campaign kicked off to recognize the nation’s Black CPAs and encourage greater progress in diversity, inclusion, and equity in the CPA profession.