ASU 2018-15 Internal-Use Software and Cloud Computing Arrangement

The ASU 2018-15 extends ASC 350-40 (Internal-Use Software) to Cloud Computing Arrangement that is a service contract.

 In general, under ASC 350-40-30, internal and external costs incurred to develop internal-use computer software shall be capitalized. This includes payroll and travel costs of employees directly involved with the software development. Under ASU 2018-15, if a cloud computing arrangement includes a license to internal-use software, then the software license is accounted for in accordance with ASC 350-40. Therefore, an entity in a hosting arrangement needs to determine (i) which implementation costs to capitalize as an asset and (ii) which costs to expense.

 Costs to develop or obtain internal-use software that cannot be capitalized under ASC 350-40 (such as training costs and certain data conversion costs) cannot be capitalized. Therefore, an entity determines which project stage (i.e. preliminary project stage, application development stage, or postimplementation stage) an implementation activity relates to. Costs for implementation activities in the application development stage are capitalized depending on the nature of the costs, and the entity depreciates the capitalized expense over the term of the arrangement. The term of the arrangement includes the noncancellable period of the arrangement plus periods an entity is reasonably certain to maintain the arrangement.

 Costs incurred during the preliminary project and postimplementation stages are expensed as the activities are performed.

 This may have some impact when an entity spends significant amount of money to implement a cloud computing arrangement. Please consult with your service provider for further details.