A reporting entity may choose to transition their on-premises software to a cloud-based solution. Benefits include reduced costs and decreased resource needs to maintain the infrastructure to house on-premises software. This transition could involve cancelling the on-premises software license or deciding not to renew a license at the end of its term.

If a reporting entity is cancelling a software license or ceasing to utilize the software, the reporting entity should assess the impact to any related unamortized capitalized internal-use software costs. The reporting entity is no longer deriving benefit from the software asset even if the reporting entity is accessing the same software through a CCA service contract. The software asset should be accounted for in accordance with the long-lived assets to be abandoned guidance in ASC 360, Property, Plant, and Equipment, as discussed in SW 3.8. The decision to cancel the software license or cease utilizing the software is likely a triggering event that would require an impairment test for the asset group that includes the software asset. Even if the broader asset group does not fail the recoverability test described in ASC 360, adjustment of the useful life of the to-be-abandoned asset may still be necessary in accordance with ASC 360-10-35-47. When the asset ceases to be used, the carrying amount of the asset should equal its salvage value, if any. See SW 3.8 and PPE 6.4.1.

Although a reporting entity may write-off a software asset upon transition to a CCA, costs to implement the new CCA may require capitalization under ASC 350-40, as described in SW 4.2.