One cloud accounting dilemma will soon be fixed

New processes from the Financial Accounting Standards Board propose a reasonable way to deal with cloud computing costs

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You know cloud computing is here to stay when the accountants take notice. The Financial Accounting Standards Board’s Emerging Issues Task Force plans to propose new rules for how to deal with cloud computing service costs.

The updated guidance means that a customer under contract with a cloud computing provider would consider the current processes of leveraging internal-use software to determine how to recognize implementation costs as an asset. Moreover, the new guidance recognizes that implementation costs are an asset that may be expensed over the terms of the contract with the cloud computing provider, as long as the arrangement is not terminated at the time of the contract.

This is good news for both the enterprises that use cloud computing whose accountants need to figure out how to treat these costs, and for the cloud computing providers that now have a way to explain to enterprises how the costs should be treated. Enterprises have struggled to find best practices, as well as define legal issues, to determine how to treat cloud computing costs that are significant for many enterprises.

The reality is that, no matter if you use internal systems or public cloud systems, you’re getting the advantage of using systems. So the treatment of those costs should be aligned. Thanks to the FASB, they soon will be more aligned.

But not fully aligned. I’ve also been struggling with how cloud computing should be treated considering that enterprises must give up the depreciation of capital expenses in most cases. So holding onto old on-premises equipment to gain the benefit from the depreciation could outweigh any benefit an enterprise would get from cloud computing. Although this new FASB rule does not overcome that issue, the trend is that accounting groups are beginning to see better and fairer ways to deal with cloud computing costs. It’s about time.