Accounting

FASB Issues Final Rules On Cloud Computing Software Arrangements

By Denise LugoThe Financial Accounting Standards Board issued final rules to clarify that if a cloud computing arrangement includes a software license, a customer should account for the software license element of the arrangement consistent with the acquisition of other software licenses.If a cloud computing arrangement doesn't include a software license, the customer should account for the arrangement as a service contract, the FASB states.The guidance, issued April 15, will not change generally accepted accounting principles for a customer's accounting for service contracts, the FASB says.These amendments issued as part of FASB's simplification initiative and were developed to eliminate diversity in the billion dollar cloud computing market on how to account for customer's cloud computing fees.There was no clear guidance to follow, and because of this, some customers incurred direct external and internal costs attempting to discern the appropriate accounting answer.Effective Date For public companies, the guidance is effective for annual periods including interim periods within those annual periods beginning after Dec. 15, 2015. For all other entities, it's effective after Dec. 15, 2015 and interim periods in annual periods after Dec. 15, 2016. Early adoption is permitted for all companies.Companies can adopt the amendments either prospectively to all arrangements entered into or materially modified after the effective date, or retrospectively, the ASU states. Limited disclosures are required for either choice.The rules were issued as ASU No. 2015-05, Intangibles—Goodwill and Other—Internal-Use Software (Subtopic 350-40), Customer's Accounting for Fees Paid in a Cloud Computing Arrangement.To contact the reporter on this story: Denise Lugo in Norwalk, Conn at [email protected] article first appeared in the Accounting Policy & Practice Report, the highly-respected news component of Bloomberg BNA’s Financial Accounting Resource Center. For more information about this comprehensive research service, visit http://www.bna.com/feibenefits or call 800.372.1033.

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