Financial Reporting Alert: Accounting Guideline 20, Customer’s Accounting for Cloud Computing Arrangements
This alert highlights key aspects of the new Accounting Guideline 20 (AcG-20), Customer’s Accounting for Cloud Computing Arrangements which is applicable to both private enterprises and not-for-profit organizations.
On November 15, 2022, the Accounting Standards Board (AcSB) issued AcG-20, Customer’s Accounting for Cloud Computing Arrangements (the Guideline). The new Guideline:
- clarifies that an enterprise shall determine a method on a rational and consistent basis for allocating the arrangement consideration to significant separable elements in a cloud computing arrangement.
- provides an optional simplification approach to permit an enterprise to expense as incurred the expenditures in a cloud computing arrangement within the scope of the Guideline.
- If the simplification approach is not applied, the enterprise must determine if the software element is a software intangible asset or a software service:
- when the software element is an intangible asset, follow the guidance in Section 3064, Goodwill and Intangible Assets, to account for the implementation costs.
- when the software element is a service, then the Guideline provides a policy choice to capitalize qualifying implementation costs or expense implementation costs.
- requires the enterprise to disclose information to help users understand what costs are capitalized or expensed and the ongoing cash flow impact of implementing a cloud computing arrangement.