FASB Improves the Accounting for Costs of Implementing a Cloud Computing Service Arrangement
The Financial Accounting Standards Board (FASB) has issued an Accounting Standards Update (ASU) that reduces complexity for the accounting for costs of implementing a cloud computing service arrangement. The ASU is based on a consensus of the FASB’s Emerging Issues Task Force (EITF) (Issue No. 17-A).
“Stakeholders observed that existing U.S. Generally Accepted Accounting Principles (GAAP) resulted in unnecessary complexity and needed to be updated to reflect emerging transactions in cloud computing arrangements that are service contracts,” said Russell G. Golden, FASB Chairman. “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.”
The ASU aligns the following requirements for capitalizing implementation costs:
Those incurred in a hosting arrangement that is a service contract
Those incurred to develop or obtain internal-use software (and hosting arrangements that include an internal-use software license).
For calendar-year public companies, the changes will be effective for annual periods, including interim periods within those annual periods, in 2020. For all other calendar-year companies and organizations, the changes will be effective for annual periods in 2021, and interim periods in 2022.
More information about the ASU can be found at www.fasb.org.