FASB's Simplification Initiative

• Published date: 01 January 2016
• DOI: http://doi.org/10.1002/jcaf.22129
• Date: 01 January 2016

107

© 2016 Wiley Periodicals, Inc.

Published online in Wiley Online Library (wileyonlinelibrary.com).

DOI 10.1002/jcaf.22129

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FASB

FASB’s Simplification Initiative

Oscar J. Holzmann and Paul Munter

As the Financial Account-

ing Standards Board (FASB)

completes its convergence

agenda with the International

Accounting Standards Board

(IASB), it has added a simplifi-

cation initiative to its agenda as

one of its points of focus going

forward. The simplification

initiative is “a tightly-focused

initiative to make narrow-scope

simplifications and improve-

ments to accounting standards

through a series of short-

term projects.”1 The projects

included in the initiative are

intended to improve or main-

tain the usefulness of the infor-

mation reported to investors

while reducing cost and com-

plexity in financial reporting.

To date, the FASB has

completed five projects from

the simplification initiative:

(1) customer’s accounting for

fees paid in a cloud computing

arrangement, (2) extraordinary

items, (3) measurement date of

defined benefit pension plan

assets, (4) presentation of debt

issue costs, and (5) simplifying

the measurement of inventory.

These projects are discussed

in this column. The FASB

has several other simplifica-

tion projects on its agenda,

including (1) simplifying the

accounting for measurement

period adjustments, (2) bal-

ance sheet classification of

debt, (3)accounting for income

taxes, (4) stock compensa-

tion, and (5) equity method

of accounting. The simplifica-

tion projects currently under

development by the FASB will

be the subject in the next issue

of this column. Finally, the

Board’s current commitment to

accounting standards simplifi-

cation is also apparent in much

of its accounting guidance and

developments not identified as

components of the Simplifica-

tion Initiative including, for

example, its recent standards

on discontinued operations

(Accounting Standards Update

[ASU] 2014-08) and on devel-

opment stage entities (ASU

2014-10)2 and the creation and

operation of the Private Com-

pany Council.3

CUSTOMER’S ACCOUNTING

FOR FEES PAID IN A CLOUD

COMPUTING ARRANGEMENT—

ASU 2015-05

For many years, there has

been guidance for the cloud

service provider for deter-

mining whether it is selling

a service to its customer or

both licensing software and

providing a service.4 However,

from the customer’s perspec-

tive there was no explicit

guidance, and diversity existed

in practice with some cus-

tomers accounting for the

arrangements as the acquisi-

tion of internal-use software

and others accounting for the

arrangements as the purchase

of services.

ASU 2015-05 addresses

a variety of cloud comput-

ing arrangements including

software as a service (SaaS),

platform as a service, infra-

structure as a service, and other

similar hosting arrangements.5

A hosting arrangement is an

arrangement in which an end

user of the software does not

take possession of the software.

Instead, the software applica-

tion resides on the vendor’s or a

third party’s hardware, and the

customer accesses and uses the

software on an as-needed basis

over the Internet or via a dedi-

cated line.

The FASB concluded that

to determine whether it had

acquired internal-use software

versus services, the customer

should use the same criteria as

are used by the vendor. There-

fore, a hosting arrangement

includes a software license only

if it meets both of the following

criteria: