By LeaseCrunch® on June 29, 2023 at 11:56 PM
The Governmental Accounting Standards Board (GASB) Statement No. 96, known as GASB 96, has ushered in a new era of accounting guidelines for government entities. Created to improve the transparency and comparability of governmental financial statements, GASB 96 expands upon previous accounting standards. It aims to provide a more accurate reflection of the financial obligations that governments incur through terms of their Subscription-Based IT Arrangements (SBITAs). With the implementation of new accounting standards comes the need for new disclosure requirements. GASB 96 defines these requirements, giving government stakeholders clear insights into their government’s financial obligations.
The importance of disclosure requirements in accounting standards cannot be overstated. In this blog, we will delve deeper into specific disclosure requirements, GASB 96, and how to apply this standard.
What Is GASB 96?
To reiterate, GASB 96 is a statement by the GASB that became effective for all government entities with fiscal years beginning after June 15, 2022. The GASB created GASB 96 to account for SBITAs, an increasingly popular arrangement between government entities and IT vendors that accounts for a government entity's use of IT-based subscription services.
What Is a SBITA?
SBITA stands for Subscription-Based IT Arrangements. These include IT services such as Software as a Service (SaaS), Platforms as a Service (PaaS), and Infrastructure as a Service (IaaS). Unlike other GASB 87, GASB 96 is for SBITAs rather than leases. Entities can use the IT asset for whatever means and purposes.
What Is a Disclosure Requirement?
Disclosure requirements are specific, detailed pieces of information about transactions in financial statements. They generally encompass general information, significant terms and conditions, payments, and several other crucial details.
The importance of disclosure requirements stems from the substantial financial commitments that come with an arrangement like a SBITA or lease. In terms of disclosure requirements for GASB 96, they were implemented to provide critical insights into an entity's current and future obligations As such, disclosure requirements for GASB 96 are required to promote transparency and enable informed decision-making for government entities.
So, what are the disclosure requirements for GASB 96?
What Do You Have to Disclose Under GASB 96?
The first of the disclosure requirements under GASB 96 is a general description of a government entity’s SBITAs. This includes the basis, terms, and conditions on which variable payments not included in the measurement of the subscription liability are determined.
A government entity is also required to disclose the number of outflows recognized in the period for variable subscription payments and other payments not previously included in the measurement of the subscription liability.
The Sum of Subscription Based Assets
Another of the disclosure requirements for GASB 96 includes reporting subscription-based assets and related accumulated amortization, listed separately from other capital assets. The subscription-based asset refers to any asset obtained due to a SBITA, and the accumulated amortization represents the total amount of the asset's cost that has been expensed over its useful life. To prevent confusion, these are disclosed separately from the capital assets.
Outflow of Resources
Government entities are required to disclose the outflow of resources recognized in a reporting period for the number of variable payments that were not included in the subscription liability. Variable payments are payments that change over the term of a SBITA due to a number of factors. The subscription liability is the present value of future payments in a SBITA. Sometimes, variable payments are not included in the calculation of the subscription liability, so this disclosure requirement ensures that financial statement users know how much governments have spent on variable payments in the past period.
Additionally, the outflow of resources for other payments that weren’t included in the subscription liability, like termination penalties, is also one of the disclosure requirements under GASB 96.
The fifth disclosure requirement under GASB 96 involves the reporting of the principal and interest obligations related to subscription liability, broken down year by year for the next five fiscal years and then in five-year increments thereafter.
The principal and interest requirements are the amount a government entity is obligated to pay in the future as part of the subscription liability. The principal is the original amount of the liability while the interest is the cost of using the subscription asset that accumulates over time. These numbers must be reported to maturity.
Disclosing this information ensures that readers of the financial statements have a clear understanding of the government entity's future commitments related to its SBITAs.
Commitments under SBITAs that have not yet commenced must also be disclosed.
Loss Associated With Impairment
During the term of a SBITA, a situation may arise in which the manner or duration of use of the subscription asset may become impaired. If any losses are to occur due to these impairments or a change in the subscription liability, it must be disclosed.
Finally, balance restatement details must be reported for the fiscal year of 2023 only.
Start Disclosing SBITAs Accurately With LeaseCrunch
Meeting the disclosure requirements for GASB 96 can be quite a tall task, especially without the right resources. With LeaseCrunch, however, simplifying your SBITA accounting is easy. LeaseCrunch’s automated lease and SBITA accounting software eliminates the need for spreadsheets, allowing you to effortlessly find the numbers you need to meet the disclosure requirements for GASB 96 on your financial sheet and for your next reporting period. To learn more, contact us, and we will set you up to schedule a demo with a member of our team.
Frequently Asked Questions
How does implementing GASB 96 affect my financial statements?
Implementing GASB 96 can significantly impact your financial statements. The changes mainly surface in the recognition of subscription liabilities and corresponding subscription assets. This standard enhances transparency, providing a more accurate representation of a government entity’s present and future financial obligations.