Key Provisions of GASB 96:

1. Definition of a SBITA: A SBITA is a contract that conveys control of the right to use another party’s IT software, alone or in combination with tangible capital assets, for a period of time in an exchange or exchange-like transaction. Control is established if the government has both:

• The right to obtain the present service capacity from the use of the IT software.
• The right to determine the nature and manner of use of the IT software.

2. Recognition and Measurement:

• Subscription Liability: At the commencement of the subscription term, governments should recognize a subscription liability, measured as the present value of subscription payments expected to be made during the subscription term.
• Subscription Asset: An intangible right-to-use subscription asset should be recognized, initially measured as the sum of the initial subscription liability, payments made to the vendor at or before the commencement of the subscription term, and certain capitalizable implementation costs.

3. Subsequent Measurement:

• Amortization: The subscription asset should be amortized over the shorter of the subscription term or the useful life of the underlying IT assets.
• Interest Expense: Interest expense related to the subscription liability should be recognized using the effective interest method.

4. Short-Term SBITAs: Contracts with a maximum possible term of 12 months or less, including any options to extend, are considered short-term SBITAs. For these, governments should recognize subscription payments as outflows of resources (e.g., expenses) based on the payment provisions of the contract, without recognizing a subscription asset or liability.

   
   

5. Disclosure Requirements: Governments are required to disclose:

   • A general description of their SBITAs.
   • The total amount of subscription assets and related accumulated amortization.
   • The principal and interest requirements to maturity for subscription liabilities.
   • Variable payments not included in the measurement of subscription liabilities.
   • Other commitments under SBITAs before the commencement of the subscription term.

Exclusions: GASB 96 does not apply to:

• Contracts that convey control of the right to use another entity’s combination of IT software and tangible capital assets that meet the definition of a lease in GASB Statement No. 87, where the software component is insignificant.
• Governments that provide the right to use their IT software to other entities through SBITAs.
• Contracts that meet the definition of public-private and public-public partnerships in GASB Statement No. 94.
• Licensing arrangements that provide a perpetual license.
• Contracts that solely provide IT support services.

Implementation Considerations: 

Implementing GASB 96 requires governments to:

• Identify all SBITAs.
• Evaluate contracts to determine if they meet the definition of a SBITA.
• Measure and recognize subscription assets and liabilities accordingly.
• Update financial reporting processes to incorporate the new disclosure requirements.

By adhering to GASB 96, governments can provide more transparent and comparable information regarding their IT subscription arrangements, thereby enhancing the usefulness of financial statements for stakeholders. Ready to streamline your organization’s compliance with GASB 96? Complete our Discovery Form today to access expert guidance tailored to your specific needs. Let us help you implement this new standard effectively and enhance your financial reporting processes.