Defining Issues   |   June 2018
 

EITF reaches a final consensus on implementation costs for cloud computing

KPMG reports on the EITF’s final consensus on customers’ accounting for implementation costs in cloud computing arrangements. The EITF decided that implementation costs incurred by customers in CCAs should be deferred if they would be capitalized by the customer in a software licensing arrangement under the internal-use software guidance.

Applicability

All companies that are customers in either:

  • software licensing arrangements (includes ‘hosting arrangements’ that transfer a software license to the customer); or
  • cloud computing arrangements (i.e. all hosting arrangements that do not transfer a software license to the customer).

Relevant dates

  • Final ASU on cloud computing implementation costs expected in Q3 2018.

Effective dates

Mandatory effective dates and early adoption provisions:

Annual periods:

For public business entities the effective date for annual periods is the fiscal years beginning after Dec. 15, 2019.

For all other entites the effective date for annual periods is the fiscal years beginning after Dec. 15, 2020.

Interim periods:

For public business entities the effective date for interim periods is the fiscal years beginning after Dec. 15, 2019.

For all other entites the effective date for interim periods is the fiscal years beginning after Dec. 15, 2021.

Early adoption allowed? Yes, for all companies.

Key impacts

  • Implementation costs related to a cloud computing arrangement (CCA) will be (1) deferred or (2) expensed as incurred, in accordance with the existing internal-use software guidance for similar costs
  • The EITF final consensus will require companies to recognize the implementation costs as expense over the contractual term of the CCA plus any optional renewal periods that are reasonably certain to be exercised by the customer
  • The balance sheet, income statement and cash flow presentation for deferred implementation costs will be consistent with the fees associated with the CCA

Report contents

  • Applicability
  • Key facts and impacts
  • Cloud computing arrangements
  • Revenue performance obligations in a business combination 
  • Episodic television series 

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