AcSB Exposure Draft – Customer’s Accounting for Cloud Computing Arrangements

• clarifies that an enterprise may determine a method on a rational and consistent basis for allocating arrangement consideration to significant separable elements in a cloud computing arrangement;
• clarifies that an enterprise applies GOODWILL AND INTANGIBLE ASSETS, Section 3064 to account for the significant elements, unless the elements are tangible assets or rights to use tangible assets;
• provides an optional simplification approach to permit an enterprise to expense as incurred the expenditures related to the elements in a cloud computing arrangement within the scope of Section 3064;
• provides factors to assist an enterprise that does not apply the simplification approach in applying the control principle in Section 3064 for determining whether the cloud computing arrangement includes a software intangible asset; and
• provides an accounting policy choice to either:
  • apply an exception to capitalize directly attributable expenditures on implementation activities when the arrangement is a software service (i.e., when no intangible asset exist) and to present such costs as prepaid expenses; or
  • continue to expense as incurred such expenditures in accordance with existing requirements in Section 3064.

The proposed Guideline would also require an enterprise to disclose information on how the cloud computing arrangement is accounted for in its financial statements.

The proposed Guideline would apply for fiscal years beginning on or after January 1, 2023, with early application permitted. Enterprises would apply the proposed Guideline retrospectively to cloud computing arrangements that exist on or after the beginning of the earliest period presented in the financial statements in which the enterprise first applies the Guideline.