Accounting for Cloud Computing Arrangements

With significant amounts being spent on technology upgrades, remote access, and cloud-based service arrangements. the AcSB has issued an exposure draft for a proposed new accounting guideline, AcG 20 – Customers’ Accounting for Cloud Arrangements.  This will be the first new AcG issued, if approved, since transition from Part V of the Handbook to ASPE in January 2011. 

For those of you with clients who have incurred significant expenses for:

  • software licenses or multi-year subscription access fees;
  • acquired contractual rights to use software;
  • internally developed software; or
  • have entered multiple element service contracts with third party SaaS (Software as a Service) providers

the exposure draft provides you with preliminary guidance and thoughts on how to account for these various expenditures. 

As you would expect, the draft guidance is providing clarification around how to apply the concepts and requirements in Handbook Section 3064 Goodwill and Intangibles, and will guide you through some of the following considerations:

  • do you have an intangible asset, subject to amortization and impairment considerations;
  • do you have a pre-paid expense to be recognized as the benefits are obtained; or
  • are the costs incurred purely operating costs in the current period.

The one significant proposed change in the exposure draft, that differs from currently available guidance, would be the option for entity’s to elect to use a simplification approach, which eliminates the need to assess costs incurred and allows for immediate expensing of all amounts, with related disclosures.

The comment period on the exposure draft is open until June 20, 2022, and we encourage you to response if this standard has any significant impact for your clients.

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