The accounting challenges of cloud services

Cloud computing is generally defined as using a shared pool of computing resources accessible via the internet. Those resources can be rapidly acquired as needed, with minimal management effort or service provider interaction.

However, operators who provide cloud services face a number of complex accounting challenges. In particular, bundling cloud services with non-cloud services will likely complicate revenue recognition patterns. Adding cloud services to the equation means operators may face problems in pricing mechanisms and revenue allocation amongst the various elements. There are also re-seller arrangements to consider (in which it is sometimes difficult to determine the principal and agent) thereby making things even more complex. Some arrangements could result in embedded leases, where an operator is providing exclusive use of an asset.

PwC has considered some of the key accounting issues in relation to cloud services offered by operators in a newly issued report: Making sense of a complex world: Cloud computing – the impact on revenue recognition

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