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Government agencies: Essential points for GASB 96 implementation

Aug 04, 2023

State and local government entities, from municipalities and school districts to public colleges and counties, need to give focused attention to Governmental Accounting Standards Board (GASB) Statement No. 96 for the recognition of subscription-based information technology arrangements (SBITAs).

A SBITA is a licensing agreement that conveys control of the right to use a vendor’s IT software for a specific term and fees as specified in the contract. The transition toward using third-party software is the impetus for GASB 96, which requires governmental organizations to recognize a subscription liability for the present value of these contracts offset by an asset. 

While the SBITA guidance was released in May 2020, the changes are effective for fiscal years beginning after June 15, 2022. And the time to implement the standard is now.

Similarities to GASB 87

In many respects, provisions of SBITAs are based on the lease accounting concepts established in GASB 87. Much of the knowledge your organization has gained from GASB 87 can transfer over to accounting for GASB 96. Contracts will be scrutinized for key information, such as fixed and variable payments, the length of the subscription and options to renew or terminate. The agreements will be evaluated against capitalization thresholds, reasonable certainty and materiality.

If you are unclear whether your organization meets the criteria for adopting GASB 96, answering yes to these two questions will indicate that it does.

  1. Does your organization have the right to obtain the present service capacity of the underlying IT assets?
  2. Does the government have the right to determine the nature and use of the IT assets?

One of the biggest differences from GASB 87 and unique to a SBITA is the accounting for the varying costs in the SBITA life cycle. Besides the subscription payments in the implementation phase, the costs of a SBITA fall into the following stages:

  • Preliminary project stage: This includes the conceptual formulation, evaluating alternatives, determining needed technology and searching for and selecting a vendor for the SBITA prior to signing an agreement with a software vendor. These costs are expensed as incurred.
  • Initial implementation stage: These include ancillary charges related to designing the chosen approach, (e.g., configuration, coding, testing and installation associated with the government’s access to the underlying IT assets). Also included in this stage are other ancillary charges needed before the go-live date of the subscription service. These costs are capitalized as part of the subscription asset. If no subscription asset is recognized, activities in the initial implementation stage should be expensed as incurred.
  • Operation and additional implementation stage: These include maintenance, troubleshooting, training costs and other activities associated with the government’s ongoing access to the underlying IT assets. These costs are expensed as incurred. However, if additional modules are added after the subscription asset is placed into service that improve functionality and efficiency, the costs may be capitalized as an addition to the subscription asset.

As is the case with any piece of authoritative guidance, be aware of updates to the disclosures required in the notes to financial statements. These include a general description of SBITAs, principal and interest requirements to maturity and impairment losses among other disclosures.

When GASB 96 does not apply

GASB 96 is a complex set of requirements, so it's also critical to understand the scenarios under which the standard does not apply:

  • Contracts that convey the right to use a combination of IT assets and tangible capital assets (GASB 87)
  • Governments that provide the right to use their IT software and other tangible assets to other entities. In other words, lessor accounting is not relevant.
  • Public-private partnerships (GASB 94)
  • Perpetual licensing agreements (GASB 51: intangible assets)
  • Contracts signed solely for IT support services. However, contracts including support services with SBITA are included.

How Wipfli can help

Wipfli’s auditing and accounting team can help your governmental organization navigate the complex changes in GASB standards. You want to be certain your SBITAs are accounted for and disclosed as required under the updated rules. Contact us to discuss how we can help. Sign up to receive additional audit and accounting information in your inbox, or continue reading on:


David Imus, CPA
Senior Manager
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