Software Companies Balk at Disclosure Rule for Cloud Setup Costs

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By Denise Lugo

Software companies are pushing back against a proposed change by accounting regulators for how they are required to attribute costs associated with moving data to the cloud.

A pending disclosure rule that would require companies to reveal their full costs of moving to cloud platforms would be difficult to apply, and would offer little benefit to investors, some of the biggest global software companies told the Financial Accounting Standards Board in May.

Cisco Systems Inc., Apple Inc., Google’s parent Alphabet Inc., Inc., and other companies said the disclosure rule requires accountants to capture data that doesn’t yet exist.

FASB proposed the rules earlier this year, along with accounting guidance to clarify how companies should account for upfront costs they incur to migrate to the cloud. Those costs can reach up to $10 million, but companies account for them differently.

The rules would require companies to capitalize the costs—to record an asset and then subsequently recognize the amount over the term of the cloud service arrangement. The accompanying disclosures would give investors a fuller picture of what those costs are in any given quarter.

In letters to FASB, software companies argue that the “quantitative disclosure"—a requirement to provide full costs in each quarter—would prove costly, time consuming, and difficult.

Workers’ hours, for example, aren’t tracked until the application and development stage of the migration process, Salesforce said in a May 2 letter to FASB. Determining the full cost incurred would therefore mean creating a new time-tracking method for hundreds of individuals, the company said.

Accountants told Bloomberg Tax May 23 that they struggle to understand why companies would find the disclosures too difficult to provide.

“The FASB’s proposed disclosure simply asks companies to accumulate all of the costs that were capitalized and those that were expensed during a reporting period,” Scott Ehrlich, president of Mind the GAAP LLC, in West Chester, Pa., told Bloomberg Tax.

“It doesn’t seem all that burdensome to capture the data necessary to make these disclosures,” he said.

Salesforce didn’t immediately return a request for comment.

Rules for Upfront Costs

Upfront costs that companies can incur include hiring consultants, training staff, and following the necessary steps and processes to ensure their systems can interact with a cloud arrangement. Those costs are separate and substantially higher than the monthly hosting fee paid to a cloud company.

FASB proposed the rules in March to remove confusion about how to report those costs, which opened them for public comment. Some accountants have said the costs should be immediately expensed, while others seek to capitalize them.

Fifty-three companies wrote to FASB, most in favor of the accounting rules but not the full disclosure package. International Business Machines Corp., HP Inc., and Facebook Inc., for example, said providing a “qualitative disclosure” with the rules would be too extensive.

“We believe there is limited benefit a financial statement user would gain by the disclosure of costs relating to the implementation of new features, enhancements or updates to existing features,” Facebook said in an April 30 letter.

Facebook said its systems don’t specifically track these types of implementation activities because there wasn’t a requirement to do so. “As such, we would need to build tracking mechanisms within our financial reporting system to provide a report of such activities,” it said.

To contact the reporter on this story: Denise Lugo in New York at

To contact the editor responsible for this story: S. Ali Sartipzadeh at

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