United States

Customer's accounting for cloud computing implementation costs

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The Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2018-15, Intangibles – 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), in August 2018 to align the requirements for capitalizing implementation costs incurred by a customer in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software. Our white paper, Customer’s accounting for cloud computing implementation costs, discusses the following:

  • The scope of ASU 2018-15, including the definition of a hosting arrangement and when it is considered a service contract
  • The capitalization of certain implementation costs incurred in a cloud computing arrangement that is a service contract
  • The balance sheet classification of capitalized implementation costs and the income statement classification of expensed implementation costs
  • The amortization of capitalized implementation costs
  • The evaluation of capitalized implementation costs for impairment
  • The disclosure requirements related to implementation costs
  • The effective date and transition provisions of ASU 2018-15

An entity may want to consider early adopting the guidance in ASU 2018-15. Determining whether that makes sense may depend (at least in part) on how the entity has historically accounted for the costs within the scope of ASU 2018-15. Entities should use our white paper to gain an understanding of the guidance in ASU 2018-15, and use that understanding to determine the effects it will have on their financial statements and whether pursuing early adoption makes sense.

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