A new standard issued recently by the Financial Accounting Standards Board (FASB) may be able to simplify cost accounting for implementation of cloud computing service arrangements.
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.
“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 FASB chairman Russell G. Golden, in a prepared statement. “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.”
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.
Terry Sheridan is an award-winning journalist who has covered real estate, mortgage finance, health care, insurance, personal finance, and accounting and taxation issues for newspapers, magazines, and websites. A Chicago native and former South Florida resident, she now lives in New England.