In August 2018, the Financial Accounting Standards Board (FASB) issued an Accounting Standards Update (ASU) No. 2018-15, Intangibles—Goodwill and Other – Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That is a Service Contract, providing guidance on accounting for the costs of implementation activities in a cloud computing arrangement that is a service contract. The earlier issued ASU No. 2015-05 (see Summary: https://singerlewak.com/index.php/2018/08/07/cloud-computing), along with the missing explicit guidance in generally accepted accounting principles (US GAAP) created diversity in practice on how to account for the implementation costs of cloud computing arrangements including or not including a software license.
This update aligns the capitalization requirements for implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software (and hosting arrangements that include or do not include an internal-use software license). The guidance does not change the accounting treatment for the service element of a hosting arrangement that is a service contract.
| Preliminary Project Stage | Application Development Stage | Postimplementation Stage |
| Expense costs as activities are performed. | Capitalize costs, depending on nature of the costs. Amortize the costs over the term of the contract in same line item as service fees. | Expense costs as activities are performed. |
Link to ASU:
https://www.fasb.org/jsp/FASB/Document_C/DocumentPage?cid=1176171138858&acceptedDisclaimer=true
