Cloud Computing Arrangements [ED]

Comment period ends on June 20, 2022

Proposed Effective Date:

The proposed Guideline would apply for fiscal years beginning on or after January 1, 2023, with early application permitted.

Next steps:

The AcSB will be conducting outreach throughout the Exposure Draft’s comment period

Last updated:

March 2022

Overview

The Accounting Standards Board (AcSB) considered its priorities for projects and decided to add accounting for cloud computing arrangements to its 2020-2021 Annual Plan. 

The Board is undertaking research to better understand different types of cloud computing arrangements entered into by private enterprises and not-for-profit organizations – and the accounting issues related to these arrangements.

At its meeting on September 9, 2020, the AcSB received feedback from its Private Enterprise Advisory Committee (PEAC) and Not-for-Profit Advisory Committee (NFPAC) on the issues relating to cloud computing arrangements. Based on the feedback, the Board tentatively decided that the two main issues to consider are:

  • the customer’s accounting for fees paid in a cloud computing arrangement; and
  • accounting for the related implementation costs.

The AcSB noted that these arrangements are prevalent for both private enterprises and not-for-profit organizations. The Board discussed various options to address these two issues, such as producing educational materials or undertaking standard-setting activities. The Board directed staff to gather more information on the various cloud computing arrangements occurring in practice to better inform its decision on the appropriate way forward.

On March 17, 2022, the AcSB issued for comment an Exposure Draft of a proposed Accounting Guideline, entitled “Customer’s Accounting for Cloud Computing Arrangements”, applicable to private enterprises and not-for-profit organizations. The proposals take a pragmatic approach by providing accounting policy choices to address a range of stakeholders’ concerns when accounting for cloud computing arrangements. They also clarify the application of existing Sections. Comments are requested by June 20, 2022.

The proposed Guideline:

  • 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 Intangibl 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: (a) 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 (b) 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.

Other developments

March 2022

On March 17, 2022, the AcSB released the exposure draft Customer’s Accounting for Cloud Computing Arrangements. The proposed Accounting Guideline is applicable to private enterprises and not-for-profit organizations. The proposals take a pragmatic approach by providing accounting policy choices to address a range of stakeholders’ concerns when accounting for cloud computing arrangements. They also clarify the application of existing Sections. Comments are requested by June 20, 2022.

 

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