Three Things to Know About GASB 96, Subscription-based Information Technology Arrangements
Contributor: Jack McKee, Manager | Government & Public Sector
Governmental Accounting Standards Board (GASB) Statement 96 provides guidance and addresses how the costs and investments for subscription-based information technology arrangements (SBITAs) are accounted for and disclosed by governmental entities. These changes are effective for fiscal years beginning after June 15, 2022, and the time is now to implement the pronouncement. Discover more on the new standard below with our roundup of the three most important takeaways.
Why Was GASB 96 Created?
An increasing number of government organizations are transitioning to using software hosted on the cloud. GASB 96 will require governments to recognize a subscription liability for the amount owed on these contracts offset by a capitalized asset. This standard will allow the reader of the government-wide financial statements a better view of the government’s net position which is influenced by the underlying event and cash flows related to future fiscal periods.
What is a SBITA?
A SBITA is a contract that conveys control of the right to use IT software alone or in combination with tangible underlying IT assets for a period of time in an exchange or exchange-like transaction. A SBITA encompasses a wide variety of products and services that can largely be categorized into three broad types:
- Software as a Service (SaaS) – a software license that allows the user to access an application over the internet instead of downloading software or maintaining hardware to run the application.
- Platform as a Service (PaaS) – allows a customer to use a SBITA vendor’s tools or coding language (software) to create applications that will run on the SBITA vendor’s cloud infrastructure.
- Infrastructure as a Service (IaaS) – allows a customer to remotely access the SBITA vendor’s network, server, and other fundamental computing tools to process, store, and operate the customer’s data.
How Challenging Will This Standard be to Implement?
Similar to GASB 87, Leases, the biggest challenge for most governments will be gathering and evaluating their SBITA population and ensuring completeness. A typical government will have many SBITAs that span across departments in their organization that provide a wide range of services. All governmental departments should be involved in searching for SBITAs in conjunction with the IT and Accounting Department for evaluation.
The good news is most of the knowledge gained from GASB 87 can be carried over to accounting for GASB 96. Contracts will be examined for key information such as fixed and variable payments, the length of the subscription, options to renew or terminate, and evaluated against capitalization thresholds, reasonable certainty, and materiality.
The biggest difference from lease accounting and unique to a SBITA is the accounting for the different costs in the SBITA lifecycle. The outlays other than subscription payments in the implementation phase of a SBITA can be grouped into the following stages:
- Preliminary Project Stage – activities in this stage include the conceptual formulation and evaluation of alternatives, the determination of the existence of needed technology, and the final selection of alternatives for the SBITA. These costs are expensed as incurred.
- Initial Implementation Stage – activities in this stage include ancillary charges related to designing the chosen path, such as configuration, coding, testing, and installation associated with the government’s access to the underlying IT assets. Other ancillary charges necessary to place the subscription asset into service also should be included in this stage. These costs are capitalized as an addition to the subscription asset. If no subscription asset is recognized (for example, if the contract is a short-term SBITA), activities in the initial implementation stage should be expensed as incurred.
- Operation and Additional Implementation Stage – activities in this stage include maintenance, troubleshooting, training costs, and other activities associated with the government’s ongoing access to the underlying IT assets. These costs are expensed as incurred. However, if additional modules are added after the subscription asset is placed into service the costs may capitalized as an addition to the subscription asset if certain criteria are met.
We will continue to monitor all GASB 96 developments (such as Statement 99 clarification) and share additional guidance. If you have questions or want to learn more about our GASB 96 implementation services, consult your Cherry Bekaert advisor or Cherry Bekaert’s Accounting Advisory practice professionals.