Project Update

Customer’s Accounting for Fees in a Cloud Computing Arrangement

Last updated on June 23, 2014. Please refer to the Current Technical Plan for information about the expected release dates of exposure documents and final standards.

(Updated sections are indicated with an asterisk *)

The staff has prepared this summary of Board decisions for information purposes only. Those Board decisions are tentative and do not change current accounting. Official positions of the FASB are determined only after extensive due process and deliberations.

Project Objective
*Decisions Reached at Last Meeting
*Summary of Decisions Reached to Date
*Next Steps
*Board/Other Public Meeting Dates
Background Information
Contact Information

Project Objective

The project is intended to improve the guidance in the FASB Accounting Standards Codification® about how a customer should account for its fees paid in a cloud computing arrangement.

*Decisions Reached at Last Meeting (June 18, 2014)


Proposed Clarifications to the Codification


The Board decided to incorporate the guidance that is now in paragraphs 985-605-55-121 through 55-123 into the scope Section of Subtopic 350-40, Intangibles—Goodwill and Other—Internal Use Software. That guidance would be applied to a cloud computing arrangement to determine whether the contract includes a license to software or is, instead, a service contract.

Transition, Effective Date, and Early Adoption

The Board decided that a reporting entity may elect retrospective or prospective transition. Under the prospective transition, an entity would apply the guidance in the proposed Update to all cloud computing arrangements entered into, or materially modified, after the effective date.

The Board decided that the effective date of the proposed Update would be as follows:
  1. For public business entities, for annual periods, including interim periods within those annual periods, beginning after December 15, 2015.
  2. For all other entities (that is, entities other than public business entities), the first annual period beginning after December 15, 2015, and interim periods thereafter.
In addition, the Board decided that an entity may early adopt the proposed guidance.

Transition Disclosures

The Board decided that if an entity elects the prospective transition method, then the entity should disclose the change in accounting principle and a qualitative description of the financial statement line items affected by the change.

If an entity elects the retrospective transition method, then the entity should provide additional quantitative disclosures, such as those required by Subtopic 250-10, Accounting Changes and Error Corrections—Overall.

Authorization to Proceed to a Ballot Draft and Comment Period

The Board directed the staff to draft a proposed Accounting Standards Update for vote by written ballot. In addition, the Board decided on a 90-day comment period for the proposed Update.

*Summary of Decisions Reached to Date

The Board voted to add to its technical agenda a project to clarify how a customer should account for its fees paid in a cloud computing arrangement.

See Decisions Reached at Last Meeting.

*Next Steps

The staff will draft a proposed Accounting Standards Update for vote by written ballot.

*Board/Other Public Meeting Dates

The Board meeting minutes are provided for the information and convenience of constituents who want to follow the Boards' deliberations. All of the conclusions reported are tentative and may be changed at future Board meetings. Decisions become final only after a formal written ballot to issue a final standard.

*June 18, 2014 Board Meeting—Clarifications to the Codification, Transition, Effective Date, Early Adoption, Transition Disclosures, and Permission to Ballot
April 28, 2014 Board Meeting—Agenda prioritization meeting about whether to add a project to the Board’s agenda

Background Information

Constituents have generated feedback stating that there is no explicit guidance on how customers should account for the fees in a cloud computing arrangement. The Board has received feedback from constituents indicating that there is diversity in practice in accounting for the fees in a cloud computing arrangement.

This project is intended to improve financial reporting for customers on how to account for the fees in a cloud computing arrangement and reduce the diversity in practice by improving the guidance in the FASB Accounting Standards Codification® about how a customer should account for its fees paid in a cloud computing arrangement.

At its April 28, 2014, meeting, the Board voted to add the project to its agenda.

Contact Information

Scott Muir
Practice Fellow
samuir@fasb.org

Bradley Deiso
Postgraduate Technical Assistant
bjdeiso@fasb.org