Cloud Hosting

The Private Company Council discussed the implementation costs of cloud computing during a meeting Tuesday and is asking its associated organization, the Financial Accounting Standards Board, to provide guidance on how to account for those costs.

During the meeting, PCC members confirmed that accounting for implementation costs in a cloud computing arrangement is a prevalent issue for private companies. A PCC member also recommended FASB provide application guidance to specify the types of implementation costs that may be appropriate for capitalization.

Two years ago, FASB issued Accounting Standards Update 2015-05, which provides guidance about a customers accounting for fees paid in a cloud computing or hosting arrangement. In general, an entity evaluates a cloud computing arrangement to determine whether the arrangement provides the entity with control of a license to internal-use software. In comment letters on the exposure draft that led to the update, some of FASBs stakeholders expressed concerns, however, about the scope of some of the amendments, and asked for more guidance on accounting for implementation costs associated with cloud computing arrangements that dont meet certain criteria and are instead considered service contracts.

They argued that, without explicit guidance, diversity in practice would continue when accounting for implementation costs such as setup and other upfront fees. The costs can include training, creating or installing an interface, reconfiguring existing systems, and reformatting data. Companies have looked at different parts of the standards for guidance on how to account for such implementation costs in cloud computing arrangements that are considered a service contract because there is no explicit guidance on them right now.

At a FASB meeting in May, the board decided to add the matter to the agenda of the Emerging Issues Task Force. The EITF plans to discuss it at a meeting next Friday.

Also at Tuesdays PCC meeting, FASBs staff delivered updates and the PCC provided feedback on a number of other FASB projects, including targeted improvements to the related-party guidance for variable interest entities during consolidations. PCC members commended FASB for proposing an alternative for private companies to provide a scope exception from the application of the VIE guidance to companies that are under common control, when certain requirements are met.

PCC members also supported FASBs plans for targeted improvements in liabilities and equity to simplify the accounting of financial instruments with down rounds. The PCC also offered feedback on FASBs proposal for nonemployee share-based payment accounting improvements and expressed support for the private company alternatives within the proposal.

Many PCC members lent their support to FASBs continuing implementation and education efforts for recently issued standards but suggested the board should keep in mind the pace of change when considering possible new projects.

A majority of PCC members recommended FASB finalize its proposed guidance on the balance sheet classification of debt, along with some minor improvements on balance sheet presentation. The members also expressed interest in helping FASB decide on the appropriate transition provisions to make and educational efforts.

FASB and the PCC plan to hold a Town Hall meeting on August 31 in conjunction with the Georgia Society of CPAs. The next PCC meeting will happen on September 19.

Michael Cohn, editor-in-chief of AccountingToday.com, has been covering business and technology for a variety of publications since 1985.

View original post here:
FASB eyes cloud computing implementation costs | Accounting Today - Accounting Today