Cloud Computing Arrangements – PEAC

Date recorded:

At its meeting on May 10, 2022, the PEAC received an update on the AcSB’s discussions regarding the proposals in the Exposure Draft. The Committee provided feedback for the AcSB to consider on the fact pattern and related analysis of the illustrative examples included in the Exposure Draft. The Committee thought that the examples were helpful to illustrate the application of the Accounting Guideline when an enterprise: (i) chooses to apply the simplification approach to expense as incurred all intangible elements in a cloud computing arrangement; and (ii) chooses not to apply the approach and, instead, chooses to capitalize qualifying expenditures on implementation activities when the arrangement is a software service. The Committee recommended adding more examples to illustrate some of the complexities found in other cloud computing arrangements. For example, cloud vendors often provide access to the software before completing implementation activities. Implementation may also be completed in stages where additional modules are provided later. Furthermore, some cloud software implementation may involve three parties: the customer, the software developer, and an implementation consultant. The Committee also suggested that the illustrative examples show the impact on the balance sheet and income statement, as it would be helpful to users and preparers.Regarding the availability of pricing information to allocate arrangement consideration, the Committee observed that such information is likely part of vendor quotations or can be requested by the customer. However, the Committee noted that sometimes the pricing may not always represent the value received. Therefore, further consideration of allocating the price to each element in the arrangement may be necessary. The AcSB will consider feedback from its Private Enterprise Advisory Committee’s feedback, its Not-for-Profit Advisory Committee, and other stakeholders on its Exposure Draft, at its July 2022 meeting after the comment period ends.

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

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