Subscription-based information technology arrangements (SBITAs) are the focus of GASB 96. This Governmental Accounting Standards Board statement is effective for periods ending June 30, 2023 and after.
To assist with your GASB 96 implementation process, here are responses to frequently asked questions we hear.
General
A: Any agreements would have to be evaluated to determine if they meet the definition of a SBITA under GASB 96 paragraphs 6-8. If there is any hardware involved, consideration should be given to the applicability of GASB 87.
A: As with GASB 87 – Leases, a contract under GASB 96 can be written or verbal if it is legally enforceable. To meet the definition of a SBITA, the arrangement has to convey control of the right to use another party’s IT software as specified in the contract for a period of time in an exchange or exchange-like transaction. The “period of time” criteria has to be met in order for the agreement to meet the definition of a SBITA. If there is no definite term or it is a perpetual license/agreement, it would not be considered a SBITA.
A: To determine whether a contract conveys control of the right to use the underlying IT assets, GASB 96 states a government should assess whether it has both:
- The right to obtain the present service capacity from use of the underlying IT assets as specified in the contract
- The right to determine the nature and manner of use of the underlying IT assets as specified in the contract.
Determining whether there is a right to obtain the present service capacity is an easier assessment than determining if there is a right to determine the nature and manner of use of the underlying IT assets. When assessing whether there is a right to determine the nature and manner of use of the IT asset, consider if modifications can be made to the programming to better fit your needs or if you can determine the data collected or how it is displayed. Control could be conveyed by being able to control who, how and when the software is used, such as who has access to the software or what devices it is downloaded on, etc. These are just a few scenarios of how control may be conveyed over the nature and manner of use of an IT asset. Each contract has to evaluated based on the rights conveyed as specified in the contract and there may some professional judgment involved.
A: GASB 96 has changed the nature of these payments. Generally, governments would now only report a prepaid for payments made before the commencement of the subscription term if the contract meets the definition of a SBITA. In conversion to the full accrual statements, the prepaid would be removed, the subscription liability for future periods would be established and the sum would be the subscription asset. In most cases, payments in subsequent years would be booked as an expenditure and reduction of the subscription liability in the year paid. In the case where all of the payments were made upfront, at the beginning of the subscription term the upfront payments would be reported as a capital expenditure in the modified accrual statements and converted to a subscription (capital) asset in the full accrual statements. There would not be a subscription liability.
A: If software is purchased versus contracted for the right to use, GASB 96 isn’t applicable. The right to use agreements (SBITAs) are for the use and control over IT software for a period of time. Once that time is over, you no longer have a right to use the IT software. A maintenance agreement doesn’t convey the right to use or purchase IT software; it usually is providing technical support or update installation on the software.
A: Usually this type of software comes with the purchase/leasing of computers/laptops. In this case, you would evaluate for what you are primarily paying for, which would be the computer/laptop. If you have separate arrangements/contracts for additional software, you would need to evaluate those arrangements/contracts to see if they meet the definition of a SBITA in GASB 96.
