The GASB issued Statement No. 96, Subscription-Based Information Technology Arrangements. The purpose of Statement No. 96 is to provide guidance on the accounting and financial reporting for subscription-based information technology arrangements (SBITA’s). The GASB had observed significant diversity in practice in this area. Many of the accounting provisions set forth in Statement No. 96 for SBITA’s are very similar to the provisions set forth in GASB Statement No. 87 for leases, including the determination of the length of the contract, the initial and subsequent recording of an intangible asset and liability, and the bifurcation of contracts containing multiple components.

Statement No. 96 accomplishes the following: (1) defining a SBITA; (2) establishing that a SBITA results in a right-to-use subscription asset—an intangible asset—and a corresponding subscription liability; (3) providing the capitalization criteria for outlays other than subscription payments, including implementation costs of a SBITA; and (4) requiring note disclosures of essential information regarding a SBITA.

A SBITA is defined as a contract that conveys control of the right to use another party’s (a SBITA vendor) 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.

The subscription term includes the period during which a government has a noncancellable right to use the underlying IT assets. The term also includes periods covered by an option to extend (if it is reasonably certain that the government or SBITA vendor will exercise that option) or to terminate (if it is reasonably certain that the government or SBITA vendor will not exercise that option).

Statement No. 96 provides an exception to capitalization for short-term SBITAs, which have a maximum possible term under the SBITA contract of 12 months (including any options to extend, regardless of their probability of being exercised). Subscription payments for short-term SBITAs are recognized as outflows of resources (i.e., as an expense).

For SBITAs other than short-term SBITAs, a government recognizes the subscription liability at the commencement of the subscription term. The subscription liability is measured at the present value of subscription payments expected to be made during the subscription term. Future subscription payments are discounted using the interest rate the SBITA vendor charges the government or the government’s incremental borrowing rate if the interest rate is not readily determinable. In subsequent financial reporting periods, as payments are made under the SBITA, a portion of the payment is treated as a reduction of the principal balance of the subscription liability, and the remainder is treated as interest expense.

The subscription asset is recognized and initially measured as the sum of (1) the initial subscription liability amount (recorded at the present value of future subscription payments, as described in the paragraph above), (2) payments made to the SBITA vendor before commencement of the subscription term, and (3) capitalizable implementation costs. A government recognizes amortization of the subscription asset as an outflow of resources over the subscription term.

Activities associated with a SBITA, other than making subscription payments, are grouped into the following three stages, and their costs are accounted for accordingly:

• Preliminary Project Stage, including activities such as evaluating alternatives, determining needed technology, and selecting a SBITA vendor. Outlays in this stage should be expensed as incurred.
• Initial Implementation Stage, including all ancillary charges necessary to place the subscription asset into service. Outlays in this stage generally should be capitalized as an addition to the subscription asset.
• Post-Implementation/Operation Stage, including activities such as maintenance and other activities for a government’s ongoing operations related to a SBITA. Outlays in this stage should be expensed as incurred unless they meet specific capitalization criteria.
  

In classifying certain outlays into the appropriate stage, the nature of the activity is the determining factor. Training costs, regardless of which stage they are in, are expensed as incurred.

If a SBITA contract contains multiple components—such as both a subscription component and a nonsubscription component, or multiple underlying hardware or software components—a government accounts for each component as a separate SBITA component and allocates the contract price to the different components. If it is not practicable to determine a best estimate for price allocation for some or all components in the contract, a government accounts for those components as a single SBITA unit.

Statement No. 96 requires a government to disclose descriptive information about its SBITAs other than short-term SBITAs, such as the amount of the subscription asset, accumulated amortization, other payments not included in the measurement of a subscription liability, principal and interest requirements for the subscription liability, and other essential information.

The provisions of Statement No. 96 are effective for fiscal years beginning after June 15, 2022. Earlier application is permitted.

The full text of Statement No. 96 is available here.

^{Readers should not act upon information presented without individual professional consultation.}