Government Advisory Insights
How Will GASB 96 Impact Your Government's GAAP Financial Reporting?
GASB has issued Statement No. 96, "Subscription-Based Information Technology Arrangements," and it goes into effect for your government's fiscal year 2023 financial statements. Subscriptions to software have become more predominant, and purchasing licenses outright has become less common. First, the good news: the guidance issued under GASB 96 is similar to what your government implemented for GASB 87 and leases, except this time it applies to intangible subscriptions.
What are Subscription-Based Information Technology Arrangements (SBITAs)?
A SBITA is a contract that conveys control of the right to use another party's (a SBITA vendor's) IT software, alone or in combination with tangible capital assets (the underlying IT assets), as specified in the contract for a period of time in an exchange or exchange-like transaction.
- Exclude: contracts that solely provide IT support services.
- Include: contracts that contain both a right-to-use IT asset component and an IT support services component.
Some common examples of SBITAs
- Bus routing software
- Teaching software
- Accounting software (possibly with A-sites/ITC software)
- Food service software
- OpenGov, Oracle NetSuite, Office 365, Dropbox, DocuSign, Adobe, Zoom, Checkbook, and similar
Who at your government will know about SBITAs?
- Your IT Coordinator, for the overall picture of subscriptions
- Your Transportation Coordinator, for routing software
- Your Food Service Coordinator, for food service software
- Your Curriculum Director, for teaching software
- Certain USAS object codes: object codes 525 and 546 may be used to record these expenditures
What you'll need to collect and provide
Please provide Julian & Grube with copies of the full subscription agreement that includes terms, cost, and so on. A copy of the invoice is insufficient, because the invoice rarely contains the full terms of the subscription.
Setting up a threshold. You'll only need to provide those SBITAs of a material value. Consider setting up a threshold for total payments on the subscription. If the total payments are more than your government's capitalization threshold, those agreements will be reported.
To make this easier, Julian & Grube will be using software called LeaseCrunch to calculate the necessary assets, liabilities, and journal entries that will be recorded.
Effective date: GASB 96 applies to your fiscal year 2023 financial statements. Start collecting your SBITAs soon so we can successfully implement GASB 96 for your government.
How GASB 96 impacts your financial statements
On the government-wide Statement of Net Position, your government will report the following related to these SBITAs:
- Asset: an intangible right-to-use asset
- Liability: a long-term subscription liability
In the Notes to the Basic Financial Statements, updated note disclosures will be added. The disclosures are similar to the lease disclosures that were previously implemented.
One other consideration: did your government pay for multiple years of a software subscription upfront? You'll need to record a prepayment so those costs can be recognized over the life of the subscription.
Understanding the subscription term
The subscription term is built like this: any period with a noncancelable right to use the underlying IT assets, plus or minus reasonably certain periods covered by the various options to extend or terminate the SBITA, equals the subscription term.
You don't need to worry about the following:
- Exclude: short-term SBITAs, meaning subscriptions with a maximum term of 12 months or less, including all options to extend.
- Exclude: perpetual software licenses (for example, a copy of Excel from 2003 that was purchased years ago).
Establishing your incremental borrowing rate
If an interest rate is not stated in the SBITA agreement, your government should estimate an incremental borrowing rate to help discount the value of the asset and liability at the inception of the SBITA.
Let's get your SBITAs organized
Rounding up your software subscriptions can take some digging, especially in the first year of a new standard. That's exactly the kind of thing we help our local government clients work through. If you'd like help navigating GASB 96, or you just want to make sure you're on track before your next financial statements, reach out to Jason Cowman and our advisory team at jcowman@jg.cpa. We're always glad to help.