By: Bjoern Helfer, Manager, SingerLewak
On March 1, 2018, the Financial Accounting Standards Board (FASB) issued a proposed Accounting Standard Update (ASU) clarifying the accounting for implementation costs related to a cloud computing arrangement that is a service contract. This update is intended to help companies evaluate the accounting for fees paid by a customer in a cloud computing arrangement (hosting arrangement) by providing guidance for determining when the arrangement includes a software license that is codified in Accounting Standards Update No. 2015-05, Intangibles—Goodwill and Other—Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Fees Paid in a Cloud Computing Arrangement.
This proposed update aligns the capitalization requirements for implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software (and hosting arrangements that include an internal-use software license).
Additionally, the update would require entities to disclose certain qualitative and quantitative information about implementation costs associated with internal-use software and hosting arrangements.