Cloud Computing – PEAC

Date recorded:

At its meeting on November 18, 2021, the Private Enterprise Advisory Committee (PEAC) received an update on the AcSB’s recent discussions regarding the development of proposals to address the customer’s accounting for fees paid in a cloud computing arrangement and the related implementation costs. The Committee provided additional feedback for the AcSB to consider. Some Committee members noted it would be helpful to clarify the accounting for subsequent changes to the software in a cloud computing arrangement. For example, the guidance should clarify whether the assessment of entity’s control of the software element needs to be performed again when there are upgrades or version changes. The Committee considered options in developing the simplified approach. Some Committee members observed that it is rare in practice for an enterprise to control the software in a cloud computing arrangement. Therefore, they thought performing the control analysis is often not difficult. These Committee members prefer an option that provides a choice to either capitalize or expense only implementation costs when the cloud computing arrangement is a service contract. Other Committee members noted that performing the control analysis could be difficult and costly for smaller enterprises. Therefore, they supported an option that permits enterprises to expense as incurred the amounts in a cloud computing arrangement without having to perform the control analysis. The Committee discussed the presentation of capitalized implementation costs when the arrangement is a software service. A few Committee members thought such costs should be presented as an intangible asset so that the expensing of such costs would not affect earnings before interest, taxes, depreciation and amortization. However, as long as there are sufficient disclosures to identify the balance sheet and income statement impact, users can make the necessary adjustments. Committee members supported the proposed disclosure requirements. The Committee also provided feedback on the transition provisions, and comments on the draft of the accounting guideline. The AcSB will consider the Committee’s feedback, as well as feedback from its Not-for-Profit Advisory Committee, in December 2021.

Review the meeting notes on the AcSB's Web site.

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