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FASB Task Force Addresses Cloud Computing Accounting Issue

The Financial Accounting Standards Board’s (“FASB”) Emerging Issues Task Force (“EITF”) has resolved a longstanding accounting issue concerning the costs for setting up various types of cloud-managed business services. During its October 12 meeting, the EITF affirmed that customers of cloud computing arrangements must account for them similarly to a software license for a large business application with Subtopic 350-40, Intangibles—Goodwill and Other—Internal-Use Software.

Last week’s decision could lead to an accounting change to U.S. GAAP. If so, the final amendment will allow companies to capitalize more costs related to installing cloud services such as employee training and creating interfaces to other systems. Capitalizing the costs would help businesses disclose them as a long-term asset, as well as amortize them during the span of the software contract.

Before officially recommending the change, task force members seek additional research regarding whether the FASB should provide companies guidance on capitalizing their software setup costs. The EITF is planning to revisit the matter in November at its next meeting.

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