FASB Proposes Additional Guidance to Cloud Service Providers on Customer Fees
Expected to simplify accounting for a customer’s fees paid in a cloud computing arrangement, Accounting Standards Update (ASU), Intangibles – Goodwill and Other – Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Fees Paid in a Cloud Computing Arrangement has been issued by the Financial Accounting Standards Board (“FASB”). The proposal is in response to the lack of accounting guidance for cloud service providers regarding the fees paid by a customer. Stakeholders claim this has resulted in confusion and unnecessary cost when accounting for such fees.
The proposed guidance would help customers decide whether a cloud computing arrangement contains a software license. If a software license is included, then the customer would document for the software license in line with other software licenses. However, if a software license is not included with a cloud computing arrangement, then the customer would note the arrangement as a service contract.
With comments due November 18th, the proposed ASU would apply to public companies in annual periods, and interim periods within, starting after December 15, 2015. As for private companies and nonprofits, the proposed ASU would be effective for annual periods start after December 15, 2015, and interim periods starting after December 15, 2016. Organizations can adopt the proposed amendments prospectively to cloud computing arrangements submitted into or materially changed after the effective date, or retrospectively. Early adoption is also permitted.