FASB Gets into the Cloud Game | AccountingWEB

FASB Gets into the Cloud Game

Continuing its efforts to simplify accounting procedures, the FASB has issued a proposed Accounting Standards Update on customer fees paid in a cloud computing arrangement. The newly-proposed update (Intangibles—Goodwill and Other—Internal-Use Software (Subtopic 350-40): Customer's Accounting for Fees Paid in a Cloud Computing Arrangement) is designed to improve financial reporting of fees paid by public and private companies and nonprofit organizations that are customers in a cloud computing arrangement.

Currently, GAAP addresses accounting principles for cloud service providers, but there is no specific guidance for a customer's accounting of fees paid to the provider. Stakeholders have voiced concerns that this omission often leads to unnecessary costs and complexity when evaluating the accounting for those fees, as well as some diversity in practice.

The proposed guidance would help customers determine if a cloud computing arrangement includes a software license. In the event a software license is included, the customer would account for the license in a manner consistent with other software licenses. Otherwise, the customer would account for the arrangement as a service contract. (However, the proposed guidance doesn't change existing GAAP for accounting of software licenses or service contracts.)

For public companies, the proposed update would be applied in annual periods, and interim periods within those annual periods, beginning after December 15, 2015. For private companies and nonprofits, it would be applied for annual periods beginning after December 15, 2015, and for interim periods beginning after December 15, 2016.

Nonprofit organizations could elect to adopt the proposed amendments either (1) prospectively to all cloud computing arrangements entered into or materially modified after the effective date or (2) retrospectively. Early adoption would be allowed for any organization.

The exposure draft includes instructions on how to submit comments by November 18, 2014. It is available at www.fasb.org. Stakeholders may also provide feedback by using the electronic feedback form available on the FASB website.

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KPMG Survey Finds Shift to Cloud Presents Unexpected Challenges, Costs
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