FASB Floats Cloud Computing Proposal

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The $131 billion cloud computing market is facing uncertainty after new guidance is floated by the U.S. accounting rulemaker. The proposal issued by Financial Accounting Standards Board (FASB) calls for customers to determine whether payments they make to cloud computing service providers should be treated as a software licenses or service contracts.

FASB provides guidance for making this determination in Proposed Accounting Standards Update Customer’s Accounting for Fees Paid in a Cloud Computing Arrangement, [an amendment of] Intangibles-Goodwill and Other- Internal-Use Software (Subtopic 350-40).

Upon release of its wide-ranging revenue recognition standard in May, guidance was provided in FASB’s Accounting Standards Codification regarding how providers of cloud computing services should account for revenue received. Questions were raised as to whether parallel treatment — including a ‘bifurcation’ of sorts for that portion of fees paid to cloud computing providers constituting or akin to a ‘software license,’ — should be accounting for substantively as a software license rather than a service contract.

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