1. Important dates
GASB 96 became effective for fiscal years beginning after June 15, 2022. Entities with a June 30 fiscal year end will be the first to implement for their fiscal year 2023.
2. SBITA definition
GASB 96 defines a SBITA as “a contract that conveys control of the right to use another party’s (a SBITA vendor’s) information technology (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.”
3. Non-applicable IT arrangements
GASB 96 does not apply to:
- Contracts that convey control of the right to use another party’s combination of IT software and tangible capital assets that meet the definition of a lease in GASB 87, in which the software component is insignificant compared to the cost of the underlying tangible capital asset (for example, a computer with operating software)
- Government entities that provide the right to use their IT software and associated tangible capital assets to other entities through SBITAs
- Licensing arrangements that provide perpetual licenses to governments to use a vendor’s computer software
- Contracts that meet the definition of public-private and public-public partnerships in GASB Statement No. 94, “Public-Private and Public-Public Partnerships and Availability Payment Arrangements”
4. Cloud computing arrangements
Organizations are already wondering how cloud computing arrangements (CCAs) apply to GASB 96. However, GASB 96 does not explicitly scope-in all these CCAs. In order for a CCA to meet the definition of a SBITA, the contract must convey control of the right to use the underlying IT asset(s) to the government. This ambiguity highlights the need for governments to carefully consider their IT arrangements, CCAs included. It also highlights the importance of documenting the reason for deciding whether an arrangement is in or out of scope for GASB 96.
5. Comparing GASB 96 and GASB 87
Similarities
- Right-to-use. Under GASB 96, a right-to-use subscription asset (a right-to-use lease asset under GASB 87), an intangible asset, and a corresponding subscription liability (a lease liability under GASB 87) should be recognized.
- Terms. The term includes a period in which a government has a noncancelable right to use the underlying IT assets (underlying leased assets under GASB 87). Also included are options to extend if reasonably certain the government or vendor will exercise any option.
- Rates. The subscription liability initially is measured at the present value of subscription payments expected to be made during the subscription term, discounted using a rate charged by the vendor or the government’s estimated incremental borrowing rate (IBR).
- Records. Periodic journal entries including interest expense accrual, amortization of the subscription asset, and payments for SBITAs should be recorded.
Differences
- Stages. GASB 96 requires costs of implementation activities associated with a SBITA to be grouped into the following three stages and their costs to be accounted for accordingly.
A preliminary project stage includes activities such as evaluating alternatives, determining needed technology, and selecting a SBITA vendor. Costs in this stage should be expensed as incurred.
An initial implementation stage includes all ancillary charges necessary to place the subscription asset into service. Costs incurred in this stage generally should be capitalized as an addition to the subscription asset.
An operation and additional implementation stage includes subsequent implementation activities, maintenance, and other activities for the governmental entity’s ongoing operations related to a SBITA. Costs in this stage generally are expensed as incurred.
- Length. When it comes to reviewing contracts to determine applicability to the standard, SBITA contracts generally tend to be more time-consuming to go through than lease contracts. The process of reviewing and analyzing a SBITA contract can be much more cumbersome than what organizations might have experienced with their lease contracts for GASB 87.
- Lessor position. Unlike GASB 87, which provides guidance for governments in the lessor position of a lease, GASB 96 does not provide guidance for governments that provide the right to use their IT software to other entities.
6. Recommended implementation steps
- Determine the implementation date and whether a restatement of any prior period is needed
- Gather all IT contracts active on or after the implementation date
- Identify IT contracts that meet the SBITA criteria in GASB 96
- Extract key data from the SBITA including commencement date, subscription term, IBR, and payments
- Identify all implementation costs associated with the SBITA that occurred on or after the adoption date and group them into the appropriate stage
- Model SBITAs in software or spreadsheets to calculate initial recognition and supporting schedules
- Prepare journal entries and footnote disclosures for the financial statements
