Cloud Computing – NFPAC

Date recorded:

At its meeting on November 9, 2021, the Not-for-Profit Advisory Committee (NFPAC) received an update on the AcSB’s recent discussions about developing proposals to address the customer’s accounting for fees paid in a cloud computing arrangement and the related implementation costs. The NFPAC generally supported these proposals and provided additional feedback for the AcSB to consider. Specifically, the Committee discussed the term over which capitalized implementation costs should be expensed. Some Committee members advised that, in practice, cloud computing arrangements often can have a subscription term as short as only one year. However, the implementation activities can enhance the software service well beyond the subscription term. Therefore, determining the term over which the implementation costs should be expensed would require professional judgment. The NFPAC also discussed the presentation of these capitalized implementation costs on an organization’s balance sheet. A few Committee members supported presenting such costs as intangible assets. They noted that the nature of the costs to implement a cloud computing arrangement is the same as the costs to implement an on-premises software solution. Therefore, the presentation of such implementation costs should be the same. However, some Committee members supported presentation as prepaid expenses. They noted that since the organization does not control the software, it does not meet the requirements for recognition as an intangible asset. Therefore, presentation of the asset and related expenses should be different than intangible assets and amortization expense. They also thought that presenting as prepaid expenses better reflects the service nature of the software. The NFPAC then provided feedback on a preliminary draft of the accounting guideline, including the disclosure requirements and transition provisions.

Review the summary of discussions on the AcSB's Web site.

Correction list for hyphenation

These words serve as exceptions. Once entered, they are only hyphenated at the specified hyphenation points. Each word should be on a separate line.