GASB 96: Understanding SBITA in 2023

As the need for new accounting guidelines arise, accounting oversight organizations work around the clock to craft rules that address the grumbles of the people; the gaps in the current standing principles that need to be addressed. One of these organizations is GASB, or the Governmental Accounting Standards Board. They develop standards in financial accounting and reporting that foster financial visibility and clarity.

A perfect example of this phenomenon is the situation that caused the creation and implementation of GASB 96. This accounting principle was developed as a response to the increased popularity of “SBITAs”. With this popularity came the need to formally regulate those arrangements.

So What is a SBITA?

Before we move on to discussing GASB 96, we must define its subject matter: the SBITA. The acronym stands for “Subscription-Based Information Technology Arrangements,” and these types of arrangements have risen in popularity due to the increase in use of cloud computing as a means of storing information and utilizing IT services.

Oftentimes, the companies that utilize these cloud services enter into contracts to use them for a specific period of time. Therefore, these contracts have similar characteristics to leases, seeing as they are an agreement between two parties for the temporary use of an asset (which is similar to the definition of a lease).

Moving On— What is GASB 96?

GASB 96 is a decree by the Governmental Accounting Standards Board providing guidance on accounting and financial reporting best practices for SBITAs, specifically when it comes to contracts with governments and government entities.

More specifically, GASB 96:

1. Defines a SBITA
2. Establishes that a SBITA results in an intangible subscription asset and a corresponding subscription liability.
3. Provides capitalization criteria for things such as implementation costs
4. Sets a precedent of requiring governments and their entities to note disclosures regarding SBITAs
5. Defines the term of the subscription as a period of time during which the lessee, also known as the governmental entity in this case, has a noncallable right to use the underlying IT assets

In addition, it is worth noting that the standards published in GASB 96 are based on the standards in GASB 87 standard for lease accounting. You can read more about GASB 87 in our blog post here.

How is a SBITA Asset Measured?

A SBITA asset is measured as the sum of three things:

1. The initial subscription liability amount
2. Payments made to a SBITA vendor before the end of the subscription term
3. The capitalizable implementation costs

Furthermore, the amortization of the subscription asset should be recognized as an outflow of resources over the term of the subscription, and any activities associated with a SBITA should be accounted for as a part of the:

1. Preliminary Project Stage - activities associated with an entity’s decision to obtain the technology provided by the SBITA. Any cost incurred in the preliminary project stage will be expensed as incurred, rather than a capitalized addition to the subscription asset.
2. Initial Implementation Stage - activities related to funding implementation efforts for the migration of data, installation, etc. Anything that is required to set up the technology assets provided by the SBITA is capitalized in addition to the subscription asset.
3. Operation and Additional Implementation Stage - activities that relate to maintaining the function of the technology asset (troubleshooting, tech support, maintenance). These services are not capitalized as a part of the subscription asset because they did not enhance the functionality of the asset in question.

GASB 96 Implementation Date

GASB 96 is effective for fiscal years starting after June 15, 2022. This new principle has been applied to all state and government entities that enter into a Subscription-Based Information Technology Arrangement. For more, read our comprehensive guide on all of the lease standards that were implemented last year.

Conclusion: Act Now

With all of the new lease standards in effect, spreadsheets are no longer an effective way to track your assets. Contact us at LeaseCrunch to learn more about how our lease accounting software can help you maintain lease accounting standards that are compliant with GASB 96, so you can quickly catch up and meet these new guidelines. 

GASB 96 FAQs

What is GASB 96?

GASB 96 is a statement released by the Governmental Accounting Standards Board (GASB) that sets the accounting standards for Subscription-Based Information Technology Arrangements (SBITA) for governmental entities.

GASB 96 establishes accounting and financial reporting requirements for state and local governments that enter into SBITAs. SBITAs are arrangements in which a government receives access to software, hardware, and/or other IT resources over a period of time in exchange for payments.

Under GASB 96, state and local governments are required to recognize a subscription asset and a corresponding subscription liability on their financial statements for SBITAs that meet certain criteria. The statement also provides guidance on how to measure and present these assets and liabilities in financial statements.

GASB 96 provides clarity on the financial reporting standards for SBITAs and ensures that governments provide relevant information to their stakeholders about these arrangements. It is effective for fiscal years starting after June 15, 2022.

Is GASB 96 Retroactive?

GASB 96 is retroactive only if the restatement of prior financial statements is practicable, which is considered a high threshold. In other words, most organizations that present comparative financial statements will need to restate prior years. If it's not possible to make changes to the financial statements of previous years, the total impact of the changes can be shown as an adjustment to the starting net position (or fund balance) of the first year for which GASB 96 is adopted.

When was GASB 96 Issued?

GASB 96 was issued on June 25, 2020, but officially took effect for fiscal years starting after June 15, 2022.