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FASB Simplifies Accounting For Cloud Computing Fees

by Leroy Baker, Tax-News.com, New York

22 August 2014


As part of its simplification initiative in United States financial accounting and reporting, the Financial Accounting Standards Board (FASB) has issued a proposed Accounting Standards Update intended to improve the accounting for a customer's fees paid in a cloud computing arrangement.

Current Generally Accepted Accounting Principles (GAAP) address 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.

FASB confirmed that stakeholders have therefore 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. Therefore, to address this issue, the proposed guidance would help customers determine whether a cloud computing arrangement includes a software license.

Under the proposed guidance, if a cloud computing arrangement includes a software license, then the customer would account for the software license consistent with other software licenses, and existing GAAP would not change. If a cloud computing arrangement does not include a software license, the customer would account for the arrangement as a service contract.

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 prospectively for all cloud computing arrangements entered into or materially modified after the effective date, or retrospectively. Early adoption would be permitted for any organization.

Stakeholders also can provide feedback on the draft guidance, by November 18, 2014, by using the electronic feedback form available on the FASB website.

It was emphasized that 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.

TAGS: tax | business | accounting | corporation tax | fees | internet | licensing | United States | financial reporting | Financial Accounting Standards Board (FASB)

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