Defining Issues | July 2017
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
- 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.
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- Defining Issues on existing guidance: FASB issues guidance on customer’s accounting for cloud computing fees