Defining Issues | March 2018

FASB issues proposed ASU on accounting for cloud computing implementation costs

KPMG reports that the FASB has issued a proposed ASU reflecting the EITF consensus-for-exposure on customers’ accounting for cloud computing arrangement implementation costs. The proposed ASU requires customers in cloud computing arrangements to capitalize implementation costs incurred if those same costs would be capitalized by a customer in a software licensing arrangement. 


Proposed ASU

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

  • March 1, 2018 – FASB issued proposed ASU
  • April 30, 2018 – Comments due on proposed ASU 

Key impacts

  • Costs incurred to implement a cloud computing arrangement (CCA) would be (1) capitalized or (2) expensed as incurred in accordance with the guidance for such costs incurred in software licensing arrangements
  • A company would recognize the implementation costs to expense over the contractual term of the CCA plus renewal periods the company is ‘reasonably certain’ to exercise
  • The expense for capitalized implementation costs, when recognized, would be presented in the same income statement line item as the CCA fees paid to the cloud service provider
  • Customers of both CCAs and software licensing arrangements would be subject to new qualitative and quantitative disclosure requirements about their implementation costs

Report contents

  • Applicability
  • Key facts and impacts
  • Current guidance
  • Deferral of implementation costs under the EITF consensus-for-exposure
  • Disclosure requirements
  • Transition



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