EITF deliberations: Customer’s accounting for cloud computing implementation costs

KPMG reports on the EITF’s deliberations on the accounting for implementation costs incurred in a cloud computing arrangement (i.e. a hosting arrangement) that does not contain a software license. The EITF directed the FASB staff to perform additional research on two alternative models and deliberations are expected to continue at the September 14, 2017 meeting.

Applicability

EITF Issue No. 17-A

• Companies that incur implementation, set up and other up-front costs in a cloud computing arrangement

Relevant dates

• The EITF deliberations are expected to continue at the September 14, 2017 meeting

Key impacts

Customers’ accounting for implementation costs incurred in a cloud computing arrangement that does not contain a software license may change.

The EITF requested the staff to perform additional research on two alternative models:

Alternative B on Issue 3 in the EITF paper. Implementation costs associated with a cloud computing arrangement that does not contain a software license would be recognized as an asset or an expense when incurred on the basis of other existing GAAP (ASC 340, ASC 350-40, ASC 360, and ASC 720-45) first, and if the costs are not covered by other GAAP, the customer would:

• account for costs related to implementation activities that are not distinct from access to the cloud-based software as prepayments for the cloud-based solution; and
• expense costs related to implementation activities that are distinct from access to the cloud-based software as incurred.

At this meeting, the SEC Observer also announced relief for certain public business entities. See our Defining Issues. Alternative C on Issue 3 in the EITF paper. Implementation costs associated with a cloud computing arrangement that does not contain a software license would be accounted for the same as if they were incurred as part of a software licensing arrangement within the scope of ASC 350-40.