FASB Gets into the Cloud Game

Wednesday, September 10, 2014 Print Email

FASB is trying constantly and persistently to streamline the accounting procedures regarding the fees paid in cloud computing environment, and FASB has introduced new Accounting Standard Updates on fees paid by customers in a cloud computing arrangement. These recent updates (Intangibles—Goodwill and Other—Internal-Use Software: Customer's Accounting for Fees Paid in a Cloud Computing Arrangement) are announced with the intention to enhance the reliability of financial reporting of fees paid by listed and non-listed companies, and the non-for-profit organizations or charities in a cloud computing arrangement.

At the moment, GAAP provides accounting rules and regulations for cloud service providers. However there is no identified clear direction for the accounting for fee paid by customers to the service provider. Some of the stakeholders and interested parties raised a point that, mostly, this exclusion results in avoidable excessive cost. Also the complexity and inconsistency in practice takes effect when evaluating the accounting for the fees.

The proposed guidance would assist customers in concluding whether the cloud computing arrangement contains a software license. If software license is there, the customers would treat the license in the way they account for other licenses. It is quite possible that arrangement does not include the software license, in this case, the customers would treat the arrangement as a service contract. It is to clear that this proposed guidance has not been put forward to change current GAAP.

For listed firms, this planned change would be applicable within annual and interim periods starting after December 2015. And for private and non-for-profit firms, this update would be applicable in annual periods after December 2015 and interim periods after December 2016.

Nonprofits have a choice to apply the planned changes in any of these ways;

1. Prospectively, or materially modified after the effective date

2. Retrospectively

For above mentioned organizations early adoption of these proposed change is not prohibited.

Source: ReadyRatios

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