Financial Accounting Standards Board (FASB) issued a new Accounting Standard Update (ASU) on April 15 related to cloud computing arrangements.

Cloud Computing Arrangements

Aimed at providing explicit guidance about customer’s accounting for fees paid in connection with cloud computing contracts, ASU 2015-05 (Intangibles—Goodwill and Other—Internal-Use Software) explains the key is determining if a software license is included as part of the software contract.

Under ASU 2015-05, when a customer determines there is a software license included in its contract, the software license component should be accounted for consistent with license of other similar intangible assets. If the contract does not include a software license, it is to be accounted for as a service contract.

Entities may adopt the guidance (1) retrospectively or (2) prospectively for arrangements entered into, or materially modified, after the effective date.

  • Effective Date: Non-public entities – Annual periods beginning after Dec. 31, 2015 and interim periods with annual periods beginning after Dec. 31, 2016
  • Early adoption is permitted for all entities

Need further clarification? Contact Doeren Mayhew’s accounting advisors in Michigan, Houston and Ft. Lauderdale to gain more insight on how these changes may affect your accounting methods.