GASB 96 (SBITA) Implementation Guide for Airports

DANNY MARTINEZ:
Welcome back to Cherry Bekaert's Government and Public Sector Podcast Series. In this episode, we'll focus on GASB Statement Number 96, Subscription-Based IT Arrangements, with a specific emphasis on how this will impact airports, although some of this information will be more broadly applicable.

My name is Danny Martinez. I am the Government and Public Sector Accounting Advisory Lead for Cherry Bekaert, a group that assists governments with implementation of new standards and an array of other governmental accounting issues. I worked with airports on GASB 87 implementation and was the prior audit partner of the San Diego County Regional Airport Authority.

We have two great guests for you today. Let's go ahead and start with Scott. Scott, will you please introduce yourself?

SCOTT ANDERSON:
My name is Scott Anderson. I have been with Cherry Bekaert for about 17 years and have worked on airports for most of my career, starting with the very first busy season over at RDU Airport Authority.

I'm on the audit side, so I spend my time auditing local governments and airports. I spent two years at the GASB as a project manager and practice fellow, and I'm excited to be back with the firm and to hit the ground running with governments implementing these standards.

DANNY MARTINEZ:
Great. Thank you, Scott. We also have Jim Holman. Jim, will you please introduce yourself?

JIM HOLMAN:
I'm Jim Holman. I'm a director with Cherry Bekaert's Digital Advisory Group. I've been with Cherry Bekaert for six years and have worked with airports for five years, mostly focused on airport business and financial process improvements, process automation, software selection, IT strategy, and business intelligence.

DANNY MARTINEZ:
Let's start with a refresher for our audience. Scott, what is GASB 96 and, more specifically, what should airports be thinking about with this statement?

SCOTT ANDERSON:
GASB 96 addresses subscription-based information technology arrangements. It's useful to understand the issue GASB is addressing with this standard. Over the last several years, there has been a trend for local governments and for-profit entities to move from physical servers to the cloud.

In doing so, they have been entering into long-term, noncancelable contracts. These contracts are based on the same underlying concept as leases in that you're paying for the right to use someone else's asset. In this case, you're paying for the right to use someone else's intangible asset or IT software.

Previously, there has not been accounting guidance on how to address these arrangements. All prior guidance for accounting for IT software related to internally developed software or perpetual licenses. The aim was cloud computing solutions, but the scope of the guidance is broader, anticipating other arrangements that aren't specifically cloud-related that should be accounted for the same way.

Airports are likely to have many contracts within the scope of the standard, since a lot of operational software is no longer off-the-shelf and instead is cloud-based.

DANNY MARTINEZ:
Jim, Scott mentioned that a lot of software is moving to the cloud. What types of software and technologies are key at airports that they should be thinking about?

JIM HOLMAN:
Ten years ago, airport software tended to be on-premise and installed locally. Now there's much less distinction between airports and commercial organizations, and many systems are cloud-based, especially at small and midsize hubs.

Common examples include office productivity software such as Office 365, Microsoft 365, or Google Workspace. Business system software or ERP solutions, such as Sage Intacct, NetSuite, Tyler Munis, and Oracle, are common. There are revenue and space management systems that drive leases or tenant billing.

Airports also have many assets requiring maintenance as part of FAA Part 139 compliance, so asset management systems are common. Other typical systems include HR and payroll, document management, airport operational databases, and flight information display systems.

DANNY MARTINEZ:
It would be easy to assume all of those systems meet the definition under GASB 96 and are accounted for the same way, but GASB 96 has nuances. Scott, how do we know which arrangements fall under the definition? What should we look for?

SCOTT ANDERSON:
GASB 96 mentions IT software but does not define IT software or specify what the GASB is referring to, so identifying arrangements requires professional judgment. As we learned implementing GASB 87 with airports, this is very facts- and circumstances-based. You must examine each contract to determine how it works.

Arrangements that look similar might be structured very differently in different airports. Once you have a list of possible subscription-based IT arrangements, you need to review each contract to determine whether it meets the definition. That takes time and effort, so airports should begin compiling and reviewing that list now.

JIM HOLMAN:
I'd add that some contracts have no termination penalty, but many business systems, like ERP contracts, often include three- to five-year terms with significant penalties for early termination. That contractual commitment is another important factor to consider.

DANNY MARTINEZ:
Completeness in the first year is the biggest audit risk. One of the free tools we developed, which has been popular, is a potential subscription-based IT arrangements checklist. If you don't have it, please reach out to one of us and we'd be happy to provide it.

Who are the buyers at the airport? Who should airport finance staff talk to in order to identify the complete population of arrangements?

JIM HOLMAN:
Start with business management—the people running the revenue side of the airport—because they often have software that collects revenue and pushes it into accounting. Procurement and buyers are key stakeholders and often have records of contracts.

IT is a resource, but many cloud subscriptions no longer come out of the IT budget, so look beyond IT. Check with department heads, legal and compliance for signed contracts, facilities and maintenance for asset management systems, and human resources for payroll platforms. Those are all good places to find what platforms are in use.

SCOTT ANDERSON:
I agree. It's surprising how decentralized this can be. Contracts can be entered into without anyone in finance knowing, which makes thorough inquiry essential.

DANNY MARTINEZ:
Airports were heavily impacted by GASB 87 and the lease accounting changes. As we wrap up and look forward, Scott, is there anything else airports or governments should be thinking about regarding upcoming GASB changes beyond GASB 96?

SCOTT ANDERSON:
There was an exposure draft issued last year on certain risk disclosures, and the GASB is currently re-deliberating that project. It appears adjustments are being made, but the overall concept remains: governments will be required to disclose certain risks.

Specifically, when a government has a concentration or constraint paired with an event that can substantially affect the government's ability to provide services, a disclosure would be required. Many airports already disclose material concentrations, such as a single airline representing a large portion of activity, even though GASB currently does not require that disclosure. The new pronouncement would require disclosures when that concentration poses an operational risk after an event.

That project is likely the next major issuance and could be finalized in the summer.

DANNY MARTINEZ:
Thank you, Scott and Jim, for joining. If you'd like to reach Scott or Jim, you can email them at sanderson@cbh.com or jim.holman@cbh.com. If you'd like to discuss how we are helping other airports around the country with GASB 96 implementation or other governmental accounting matters, you can reach me at danny.martinez@cbh.com.

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