The Emerging Issues Task Force at the Financial Accounting Standards Board has arrived at some conclusions about how companies should account for certain cloud computing arrangement costs.

FASB’s EITF at a recent meeting arrived at a consensus that customers in cloud computing arrangements set up as service contracts should apply guidance found in the Accounting Standards Codification under Subtopic 350-40 relating to internal-use software to determine which implementation costs should be recognized as an asset. The difference is important because asset recognition means it is added to the balance sheet and capitalized or amortized over time; the alternative would be to expense costs immediately through the income statement.

Cloud computing cost accounting has been a thorn in accountants’ side for some time, with preparers uncertain about what guidance to follow and developing different approaches as a result. In 2015, FASB issued Accounting Standards Update No 2015-05 to provide guidance on how to account for fees in cloud computing or hosting arrangements, but questions persisted. The board says after the standard was issued, staff members received additional requests for guidance, pointing to diverse practices that were developing.

The EITF also arrived at some conclusions with respect scope, subsequent measurement, presentation and disclosure, and effective date. The EITF examined the issues and determined the internal-use software guidance contains the core information companies need to determine how to account for hosting costs. The EITF says companies should expense implementation costs over the term of the hosting arrangement, which includes periods covered under renewal options where there’s reasonable certainty those options will be exercised.

In the EITF’s view, companies should apply the impairment guidance found in ASC Subtopic 350-40 to any costs that are capitalized under the internal use-software guidance. Companies should be required to record the expense related to implementation costs in the same line item in the income statement as the expense for fees for the hosting arrangement and to classify the cash flows from capitalized costs in the same manner as the cash flow as fees for the hosting arrangement.

Finally, the EITF says certain disclosure requirements under the same guidance should be provided, supplemented by a description of the nature of an entity’s hosting arrangements. FASB will meet later in June to determine whether to ratify the EITF recommendation.