FASB ISSUES PROPOSAL TO SIMPLIFY ACCOUNTING FOR CLOUD COMPUTING FEES PAID BY
CUSTOMERS
Norwalk, CT, August 20, 2014—As part of
its simplification initiative, the Financial Accounting Standards Board (FASB)
today issued a proposed Accounting Standards Update intended to simplify the
accounting for a customer´s fees paid in a cloud computing arrangement.
The
Update, Intangibles—Goodwill and Other—Internal-Use Software (Subtopic
350-40): Customer´s Accounting for Fees Paid in a Cloud Computing
Arrangement, is intended to improve financial reporting of fees paid by
public and private companies and not-for-profit organizations who are customers
in a cloud computing arrangement.
Current Generally Accepted Accounting
Principles (GAAP) address the accounting for cloud service providers but do not
include explicit accounting guidance about a customer´s accounting for its fees
paid to the cloud service provider. Stakeholders have raised concerns that the
lack of guidance in this area leads to unnecessary cost and complexity when
evaluating the accounting for those fees, as well as some diversity in
practice.
To address this issue, the proposed guidance would help
customers determine whether a cloud computing arrangement includes a software
license.
If a cloud computing arrangement includes a software license,
then the customer would account for the software license consistent with other
software licenses. If a cloud computing arrangement does not include a software
license, the customer would account for the arrangement as a service contract.
The proposed guidance would not change existing GAAP for a customer´s
accounting for software licenses or service contracts.
For public
companies, the proposed Update would be applied in annual periods, and interim
periods within those annual periods, beginning after December 15, 2015. For
private companies and not-for-profit organizations, the proposed Update would be
applied for annual periods beginning after December 15, 2015, and for interim
periods beginning after December 15, 2016.
Organizations would elect to
adopt the proposed amendments either (1) prospectively to all cloud computing
arrangements entered into or materially modified after the effective date or (2)
retrospectively. Early adoption would be permitted for any
organization.
The objective of the FASB´s simplification initiative is to
reduce cost and complexity in financial reporting while improving or maintaining
the usefulness of the information reported to investors. As part of the ongoing
initiative, the Board will add to its agenda a series of narrow-scope projects
that stakeholders have identified as opportunities to simplify GAAP in a
relatively short time period.
The Exposure Draft—including instructions
on how to submit comments by November 18, 2014—is available at http://www.fasb.org/. Stakeholders
also can provide feedback by using the electronic feedback form available on the
FASB
website.
About the Financial Accounting Standards
Board
Since 1973, the Financial Accounting Standards Board has
been the designated organization in the private sector for establishing
standards of financial accounting and reporting. Those standards govern the
preparation of financial reports and are officially recognized as authoritative
by the Securities and Exchange Commission and the American Institute of
Certified Public Accountants. Such standards are essential to the efficient
functioning of the economy because investors, creditors, auditors, and others
rely on credible, transparent, and comparable financial information. For more
information about the FASB, visit our website at http://www.fasb.org/.