Article

How are you accounting for cloud implementation costs incurred?

ASU 2018-15 provides clarity

Jul 05, 2019
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Audit Professional services

As business and professional services companies grow, many are using software and cloud-based platforms to enhance and deliver their services. From law firms to engineering firms, organizations are using technology platforms and the cloud to serve their clients better and faster, improve efficiencies throughout the enterprise and to remain competitive in a fast-paced marketplace. Related to this new cloud platform integration and appropriate financial reporting, however, is some confusion on the treatment of associated costs. Some companies could be overlooking key financial reporting standards related to software-based resources and cloud platforms, as well as subsequent tax considerations and credits.

The Financial Accounting Standards Board issued Accounting Standards Update (ASU) 2018-15Intangibles—Goodwill and Other—Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract (a consensus of the FASB Emerging Issues Task Force), last year to provide further clarity related to the accounting treatment of cloud computing implementation costs incurred by a customer. Under the guidance, for instance, an engineering firm that implemented a cloud-based field service management platform to track projects can capitalize certain costs of the technology implementation. In addition, the organization could take advantage of a research and development (R&D) tax credit, if applicable. Some organizations simply may not be aware of this accounting guidance or the resulting tax opportunities.

It’s important to learn more about ASU 2018-15 and its impact on your business. To get started, read our white paper Customer’s accounting for cloud computing implementation costs. In addition, you should also assess and track new technology implementation costs, categorize those costs, determine the appropriate costs to capitalize and apply ASU 2018-15 accordingly in financial reporting.

RSM contributors

  • Chris Murphy
    Partner
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