Working with a cloud provider may become much, much easier. Proposed legislation may allow accounting for Software-as-a-Service, Infrastructure-as-a-Service, Platform-as-a-Service, and other contracts to be recognized more simply than before. Learn what this means in your move to the cloud from Brittenford Systems
Reducing Complexity in Cloud Computing
Proposed by the Financial Accounting Standards Board (FASB), this proposal is designed to simplify the accounting for fees that public and private companies pay as customers in cloud-computing arrangements with third-party service providers.
Rules exist under current GAAP addressing the accounting for cloud service providers. But there is no explicit accounting guidance under GAAP about how a customer should account for fees paid to the cloud service provider.
This lack of guidance can lead to unnecessary cost and complexity during the evaluation of how to account for those fees, as well as diversity in practice.
The Board proposes to add guidance to Subtopic 350-40, Intangibles—Goodwill and Other—Internal-Use Software, that would help entities evaluate the accounting for fees paid by a customer in a cloud computing arrangement. This proposed legislation would give customers guidance according to whether a cloud-computing arrangement includes a software license:
- If the cloud-computing arrangement includes a software license, the customer would account for it in a manner consistent with accounting for other software licenses.
- If no software license is included in the cloud-computing arrangement, the customer would account for the arrangement as a service contract.
The proposed guidance already exists in the Codification in paragraphs 985-605-55-121 through 55-123, but it is included in a Subtopic applied by cloud service providers to determine whether an arrangement includes the sale or license of software.
For the full proposal: Click Here
To Add Commentary on the issue: Click Here
The proposal is part of FASB’s simplification initiative, which aims to find expedited solutions to narrowly focused concerns about U.S. GAAP. FASB is accepting comments on the proposal at its website. The deadline for comments is November 18.
Brittenford Systems, as a provider of cloud solutions to the Washington D.C. Area, supports this move to help businesses simplify their accounting when choosing cloud computing. We welcome you to look at our cloud computing product offerings, register for our e-newsletter, and contact us to learn how simple the move to the cloud can be.