Accounting simplified for cloud computing fees

Accounting for cloud computing fees paid by customers may become simpler under a proposed Accounting Standards Update.

The proposed update, Intangibles – Goodwill and Other – Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Fees Paid in a Cloud Computing Arrangement, was issued by the Financial Accounting Standards Board (FASB) in mid-August as part of its simplification initiative. It’s hoped that the update will help public and private companies and not-for-profit organizations to improve the financial reporting of fees they pay as customers in a cloud computing arrangement.The accounting guidance currently provided by the generally accepted accounting principles (GAAP) doesn’t provide the clarity customers desire for accounting for their fees to cloud service providers. For this reason, there are concerns about what may be additional, unnecessary costs, complexity and diversity of practice.

The update addresses the question of whether a software license is included in the cloud computing arrangement. The answer will determine the accounting method:

• If the license is included, customers will account for the software license in the same way they account for other software licenses.
• If the license isn’t included, customers will account for the cloud computing arrangement in the same way as they would a service contract.

The proposed update will not affect accounting for software licenses and service contracts under current GAAP.

The proposed update will apply to:

• Public companies in annual periods – and interim periods within the annual periods – beginning after Dec. 15, 2015
• Private companies in annual periods beginning after Dec. 15, 2015, and for interim periods beginning after Dec. 15, 2016
• Not-for-profit organizations in annual periods beginning after Dec. 15, 2015, and for interim periods beginning after Dec. 15, 2016

The companies or organizations with cloud computing arrangements entered into or materially modified after the effective date will elect to adopt the amendments either prospectively or retrospectively. They may opt for early adoption.

Companies and organizations may submit comments to FASB by the deadline of Nov. 18, 2014. The Exposure Draft has instructions and is available at www.fasb.org. Electronic feedback may be submitted on a form on the FASB website at www.fafsurveys.org/se.ashx?s=4CA36E9260F4A9FE.

Do you still have questions about cloud computing fees? Contact us so we can help with your business accounting.