GASB 96
UNDERSTANDING
THE NEW STANDARD
Intelligent Portfolio is here to help and to deliver a complete, straightforward solution to address all three phases of challenges faced by organizations looking to implement GASB-96:
-
PHASE 1: Upfront SBITA Organization & Data Extraction
-
Our team can help with your contracts and have you verify the information, or we can guide you through the process to enter the information in the application.
-
-
PHASE 2: Schedule Creation
-
Intelligent Portfolio generates all schedules necessary to comply with GASB-96.
-
-
PHASE 3: Ongoing Compliance
-
With 24/7 accessibility and more efficient collaboration across departments, you can ensure all future contracts are accounted.
-
GETTING STARTED
GASB 96 explicitly excludes contracts which only provide an organization IT support services, but does include contracts providing IT support services in conjunction with the right to use a related IT asset. The following are also exempt from the scope of GASB 96:
-
Contracts that meet the definition of a lease under GASB 87. This may occur when a contract includes both a software component and a capital asset component, and the capital asset’s cost significantly exceeds the software’s cost.
-
Governments that provide other entities the right to use their own IT software and associated tangible assets through a SBITA.
-
Contracts that meet the scoping criteria for GASB Statement No. 94, Public-Private and Public-Public Partnerships and Availability Payment Arrangements.
-
Any licensing arrangements providing the government entity a perpetual license to use a vendor’s computer software falling under the scope of GASB Statement No. 51, Accounting and Financial Reporting for Intangible Assets.
Additionally, GASB 96 provides an exemption for short-term SBITAs. Under GASB 96, a short-term SBITA has a maximum possible term of 12 months at the commencement of the subscription term. This includes any renewal or extension options regardless of whether or not the government is reasonably certain to exercise these options. This is similar to the GASB 87 short-term lease definition, as both consider all possible term extensions rather than the organization’s probability of exercising any of those options. The governmental entity is not required to recognize a subscription asset and liability for any short-term SBITA. Instead, subscription payments are recognized as outflows of resources when incurred, with an asset recognized if payments are made in advance, or a liability if payments are due as of the end of a reporting period.
EXEMPTIONS
IT software subscriptions allow governments to benefit from the use of IT software without maintaining a perpetual license or title to the software. Therefore, these arrangements are mutually beneficial for both the vendor and the government. Because of the increased popularity of subscription-based information technology arrangements (SBITAs), the GASB issued Statement No. 96, Subscription-Based Information Technology Arrangements (GASB 96) to address the accounting treatment and financial reporting for these agreements. GASB 96 is effective for reporting periods beginning after June 15, 2022 (June 30, 2023 audits will be first).
EFFECTIVE DATE
For GASB 96, organizations first must determine whether or not the contract is a SBITA. Under GASB 96 “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.”
A key component of this definition is the element of control. Governments must evaluate each contract to determine whether the contract grants them control over the underlying IT assets. Similar to GASB 87, this requires assessing whether the government has the right to both the present service capacity of the underlying IT assets and to dictate the nature and manner of use of the underlying IT assets. Both of these specifications must be met for the government to have control, and therefore, for the contract to be a subscription-based information technology arrangement.
SBITA DEFINED
