January 18, 2018

The Emerging Issues Task Force (EITF) met on January 18, 2018 to discuss a customer’s accounting for implementation, setup, and other upfront costs (collectively referred to as implementation costs) incurred in a cloud computing arrangement that is a service contract.

At that meeting, the EITF members reached a consensus-for-exposure that a customer in such service contracts would look to the existing guidance on internal-use software to determine which implementation costs to recognize as an asset. The EITF members also decided that:
  • Implementation costs that are recognized as an asset under this consensus-for-exposure would be expensed over the term of the hosting arrangement. The term of the hosting arrangement would be the noncancellable period of the arrangement and certain periods covered by options to renew (or not to terminate) the arrangement.
  • The expense related to the capitalized implementation costs would be presented in the same financial statement line item as the hosting fees.
  • A customer would provide certain qualitative and quantitative disclosures. Those disclosures also would apply to implementation costs incurred for internal-use software.
The EITF members also decided on other aspects related to their consensus-for-exposure (such as analogies, transition, and transition disclosures). The members also discussed other items, such as the scope of the proposed guidance. A proposed Accounting Standards Update reflecting the EITF members’ consensus-for-exposure will be issued in the forthcoming weeks.

The next EITF meeting is scheduled for May 17, 2018.  The March 22, 2018 meeting has been cancelled. For more information on the EITF, including updates on the next EITF meeting date, visit the FASB website.