GASB 96 Implementation: 8 Phases from Kickoff to First Audit

The first challenge starts here: building a complete SBITA inventory. For most governments, this is the largest year-one workload because subscription agreements are usually scattered across departments and systems that were never originally tracked as SBITAs.

As Goeman notes, GASB 96 extends beyond traditional software subscriptions and can also include infrastructure-as-a-service (IaaS) and platform-as-a-service (PaaS) arrangements, significantly widening the contract population accounting teams need to review.

To pressure-test completeness, your team should:

• coordinate with IT and procurement teams to identify tracked subscriptions,
• review general ledger activity and recurring vendor payments tied to IT spending,
• pull expenditure reports for technology-related object codes, and
• review board meeting minutes and contract approvals for keywords such as "cloud," "hosted," "platform," or "software subscription."

Your Phase 2 deliverable is the complete SBITA population: every potentially in-scope contract supported by the underlying agreement and related documentation. This is also one of the first areas auditors test heavily during year one because missing contracts immediately raises questions about completeness controls and inventory procedures.

San Joaquin County's case study shows the challenge at scale. Before centralizing its lease and subscription agreements, the county managed more than 100 contracts across departments using manual spreadsheets and calculations. Having the portfolio in DebtBook reduced recalculation work from hours to minutes and simplified audit support by maintaining schedules and documentation in one place.

Phase 3: Qualify Each Contract Against the SBITA Definition

Once the inventory is built, the next step is deciding which contracts qualify as SBITAs, which don't, and which qualify as short-term SBITAs that get expensed instead of capitalized.

For each contract, three conditions determine SBITA classification: the arrangement conveys the right to use IT software, the government controls that right, and it occurs in an exchange or exchange-like transaction.

Goeman's guidance here is direct:

"Be careful not to focus on what the agreements are called, rather they should be evaluated in substance."

The Washington State Auditor's BARS Manual offers a practical test for the perpetual-license boundary: "Can I still log in and access the IT software after the engagement term ends?"

If the answer is no, it isn't a perpetual license, and you should evaluate the contract further for SBITA classification.

The standard explicitly excludes several arrangements. Before classifying, confirm the contract falls within scope by checking for common exclusions:

• Contracts treated as leases under GASB 87 when the primary asset is physical equipment or property, and the software component is only incidental.
• Contracts where the government provides a right to use its own IT software to other entities.
• Public-private or public-public partnerships within the scope of GASB Statement No. 94.
• Perpetual licenses subject to GASB Statement No. 51.
• Contracts that only provide IT support services.

Two Common Traps

Two qualification traps surface repeatedly in year-one audits. The auto-renewing agreement is the first.

As Calvin Kunkel of LSL CPAs notes, "Subscription arrangements brought a common challenge that we didn't see with leases: the annual auto-renewing agreement. Organizations must carefully evaluate the language surrounding renewal terms and who specifically has the right to renew or not renew. If either party has the right to renew or not renew with no approval needed from the other party, this is considered a cancellable arrangement and likely has a term of less than 12-months, depending on other term language in the contract." That distinction governs whether the contract becomes a capitalized SBITA or an expensed short-term arrangement.

The second trap is the multi-component contract. When a contract bundles components like hardware and software, you must account for the subscription and non-subscription components as separate contracts and allocate the price across them. If allocation isn't practicable, the contract is accounted for as a single SBITA unit.

A short-term SBITA has a maximum possible term under the SBITA contract of 12 months (or less), including any options to extend, regardless of their probability of being exercised. You recognize short-term SBITAs as outflows of resources based on contract payment provisions, with no asset and no liability recorded.

Your Phase 3 output is a qualification matrix. Classify every contract from the population as SBITA, short-term SBITA, or out-of-scope, with a rationale that holds up to audit review.

Phase 4: Make the Measurement Judgments

This is the phase where the audit lives. Subscription term, discount rate, and implementation cost staging are the three measurement decisions auditors probe in year one.

Subscription Term

Under GASB 96, the subscription term includes:

• the non-cancelable period of the agreement,
• extension periods your organization is reasonably certain to exercise, and
• excludes periods covered by termination options your organization is reasonably certain to exercise.

The key judgment is "reasonably certain." GASB 96 doesn't assign a numeric threshold, although some practitioners use informal ranges as internal guidance.

In practice, auditors focus less on the percentage itself and more on the supporting documentation: what renewal or termination options exist, what conclusion the accounting team reached, and what evidence supports that assessment.

Because the subscription term directly affects measurement, amortization, and liability calculations, it is one of the most heavily reviewed judgments during a GASB 96 audit.

Discount Rate

The discount rate under GASB 96 is ultimately a policy and documentation decision. The standard directs you to use the interest rate charged by the SBITA vendor, including any rate implicit in the agreement. If that rate can't be readily determined, you use your estimated incremental borrowing rate (IBR).

In practice, most SBITA contracts don't state an interest rate directly. As Goeman notes in GASB 96 SBITA guidance:

"The first step in identifying the discount rate is to review the district's contract for an explicit interest rate charged. In most cases, there will not be a stated interest rate in the contract."

That usually pushes governments toward an incremental borrowing rate methodology. The Washington State BARS Manual suggests practical starting points, such as the prime rate or published local bank borrowing rates for comparable terms.

The critical control is consistency. Your organization should adopt a written incremental borrowing rate policy and apply it consistently across the SBITA portfolio. Auditors routinely examine why similar agreements were measured using different discount rates and whether the supporting rationale was documented clearly.

Implementation Cost Staging

Implementation cost classification is where the standard demands the most judgment. GASB 96 groups all outlays other than subscription payments into three stages:

Training costs are always expensed regardless of implementation stage, and misclassifying them as capitalizable costs is one of the most common first-year audit findings under GASB 96.

Data conversion costs depend on their purpose. They can be capitalized only when they are necessary to place the subscription asset into service. Otherwise, they are expensed.

Operation-stage costs are expensed unless they improve the subscription asset. GASB 96 allows capitalization when the costs either:

• increase the functionality of the subscription asset by enabling new tasks, or
• improve efficiency by increasing the level of service without adding new functionality.

Your Phase 4 output is a per-contract measurement worksheet: subscription term and rationale, discount rate and policy reference, capitalizable initial-implementation costs, and expensed preliminary-project and operation costs.

Phase 5: Calculate Opening Balances and Place the Asset Into Service

Phase 5 is where your implementation shifts from contract review into accounting measurement. Your team calculates the present value of future subscription payments, determines which implementation costs should be capitalized, and records the opening subscription liability and subscription asset.

Under GASB 96, the subscription term begins when the initial implementation stage is complete, and your organization obtains control of the right to use the underlying IT assets. At that point, the subscription asset is considered placed into service, and your organization recognizes both:

• the subscription liability, and
• the intangible right-to-use subscription asset,

unless the arrangement qualifies as a short-term SBITA.

The initial subscription liability is the present value of the subscription payments expected to be made during the subscription term, and includes:

• Fixed payments
• Variable payments that depend on an index or rate (such as the Consumer Price Index), measured as of the commencement date
• Variable payments that are fixed in substance
• Penalties for terminating the SBITA, if the subscription term reflects an intent to exercise a termination option or a fiscal funding clause
• SBITA incentives receivable from the vendor (treated as a reduction)
• Any other payments to the vendor are reasonably certain to be required

Variable payments based on usage, performance, or number of user seats are not included in the initial liability. Those are "recognized as expenses in the period in which the obligation is incurred."

The opening subscription asset includes:

• the initial subscription liability,
• any payments made to the vendor before or at commencement, and
• capitalizable implementation costs,

less any vendor incentives received at commencement.

Payments made before the subscription term begins are initially recorded as prepaid assets and later reclassified into the subscription asset once the underlying IT asset is placed into service. This commonly occurs when vendors begin billing during the implementation stage before the government has operational access to the system.

GASB 96 also requires retroactive implementation where practicable. You must restate prior-period financial statements, recording the cumulative effect as an adjustment to beginning net position rather than treating it as a new-period expense or liability.

A worked example helps anchor the math. Take a SBITA with a four-year noncancelable term, $50,000 annual payments at the end of each fiscal year, a 4.5% incremental borrowing rate, and $8,000 of capitalizable initial-implementation costs.

The present value of the four end-of-period payments at 4.5% is:

PV = 50,000 / (1.045)^1 + 50,000 / (1.045)^2 + 50,000 / 
(1.045)^3 + 50,000 / (1.045)^4    
= 47,846.89 + 45,786.50 + 43,814.83 + 41,928.07    
= 179,376.28 (rounds to 179,376) 

The opening subscription liability is $179,376. The opening subscription asset is $179,376 + $8,000 in capitalized implementation costs = $187,376. Amortization begins on the commencement date and runs over the shorter of the four-year subscription term or the underlying IT asset's useful life.

Your Phase 5 output is an opening balance per contract: subscription liability, subscription asset, and the journal entry recording the asset, the liability, and any prepaid-asset reclassification.

Phase 6: Set Up the Journal Entries

By Phase 6, the implementation shifts into recurring close-cycle accounting.

Most year-one GASB 96 accounting revolves around four recurring entries: initial recognition, subscription payments, amortization of the subscription asset, and year-end reclassification of the subscription liability.

1. Initial recognition: Debit Subscription Asset and credit Subscription Liability for the present value of future payments, then add any prepaid amounts and capitalizable implementation costs.
2. Periodic amortization: Debit Amortization Expense and credit Accumulated Amortization over the shorter of the subscription term or the useful life of the underlying IT asset.
3. Interest accretion: Debit Interest Expense and credit Subscription Liability for the interest accrued on the outstanding liability balance.
4. Subscription payment: Debit Subscription Liability for the principal portion, debit Interest Expense (or reverse the prior accrual), and credit Cash for the payment amount.

Two technical wrinkles deserve attention.

First, governmental fund reporting and government-wide reporting use different bases. In governmental funds, current-year cash outflows hit expenditures on the modified accrual basis. The asset and long-term liability live in the government-wide statements via conversion entries. The conversion entries are where many off-the-shelf SBITA software outputs miss the mark.

Second, the current-versus-long-term liability split. The principal portion due within the next fiscal year is current; the rest is long-term.

As Calvin Kunkel of LSL CPAs notes, the implementation risk is whether the accounting structure underneath those entries was configured correctly for your organization's reporting model.

In practice, many lease and SBITA software platforms don't fully account for modified accrual-to-full accrual conversion entries, memo funds, or the required split between current and long-term liability balances. Those gaps often surface during year-end close and audit testing rather than during initial setup.

DebtBook generates comprehensive journal entry exports for subscriptions in a few clicks. Users select key parameters, including start and end date, fiscal year end, payment frequency, and accrual and depreciation entry frequency, then download the report. The Excel export includes full accrual and modified accrual journal entries in a single year-end export rather than several disconnected ones.

Your Phase 6 output is a journal-entry template that produces correct entries for both fund and government-wide reporting, with the current and long-term liability split surfaced cleanly.

Phase 7: Prepare First-Year Disclosures

The final pre-audit step is the disclosure block. GASB 96's note disclosure list is specific. Each year your organization reports SBITAs, the notes should disclose:

1. A general description of your SBITAs, including the basis, terms (length of agreement, options for renewal and termination, discount rate, etc.).
2. The total amount of subscription assets and related accumulated amortization, separately from other capital assets.
3. Commitments before the commencement of the subscription term.
4. Principal and interest requirements to maturity for the subscription liability, presented separately for each of the five subsequent fiscal years and, at a minimum, in five-year increments for the years thereafter.

GASB 96 allows you to aggregate disclosures across multiple SBITAs rather than disclose each contract individually. As the standard states, disclosure information "may be grouped (i.e., aggregated)" instead of being presented contract by contract.

Additional disclosures apply when variable payments, termination penalties, or impairment exist. For variable payments, the notes should cover how they are determined and the total recognized during the reporting period. Two scope boundaries matter: short-term SBITAs are excluded from GASB 96's disclosure requirements, and subscription liabilities fall outside GASB 88's debt disclosure rules, even though maturity-style principal and interest schedules still apply.

For this, users can create GASB 96 audit notes. DebtBook flags which subscriptions commenced during the selected fiscal year and lets users note additional contracts that may have commenced or require remeasurement.

Your Phase 7 output is a complete first-year disclosure block, aggregated where the standard allows, with variable-payment and impairment disclosures added when applicable, ready for the audit walkthrough.

Phase 8: Walk the Auditor Through It

The year-one implementation project effectively ends at the audit walkthrough. From that point forward, GASB 96 becomes an ongoing operational process rather than a one-time adoption exercise.

During year-one testing, auditors typically focus on six areas:

• completeness of the SBITA population,
• qualification decisions and short-term classifications,
• discount rate support,
• subscription term judgments,
• implementation-cost classification, especially data conversion costs, and
• disclosure reconciliation back to the underlying schedules and journal entries.

Each of those areas traces back to the workpapers and controls established during Phases 2 through 7.

Strong documentation is what keeps the audit process manageable. Your auditor should be able to trace every reported balance back to the source contract without additional reconstruction. As LSL CPAs notes in its GASB 87/96 implementation guidance, many accounting teams struggled during year-end close because calculations and schedules were fragmented across spreadsheets.

Year 2 introduces a different set of challenges. GASB 96 requires remeasurement when subscription terms change, payment estimates change, variable-payment contingencies resolve, vendor interest rates change, or previously unused options are exercised. New subscriptions also continue entering the population while older agreements update.

The final output of Phase 8 isn't just a compliant year-one implementation. It's a repeatable operating process for maintaining GASB 96 compliance in every reporting cycle that follows.

From Operational Overload to a Defensible Year-End

Each dollar that flows through a government's subscription portfolio comes from taxpayers. The first-year close is the artifact that demonstrates how that portfolio is governed: every SBITA is identified, qualified, measured, recorded, and disclosed in a way the audit report can affirm.

DebtBook Subscription Management helps governments by centralizing subscription agreements, supporting remeasurements and modifications, and maintaining audit-ready schedules and documentation throughout the SBITA lifecycle.

To fix your own implementation, book a demo with DebtBook to see how it turns the eight-phase arc into a workflow your team owns rather than a deadline it chases.

Related GASB 96 Reading

• Ongoing GASB Compliance Checklist
• GASB 87 and GASB 96: Understanding the Two Standards
• 3 Things You Didn't Know You Could Do with DebtBook: Lease & Subscription Edition

Disclaimer: DebtBook does not provide professional services or advice. DebtBook has prepared these materials for general informational and educational purposes, which means we have not tailored the information to your specific circumstances. Please consult your professional advisors before taking action based on any information in these materials. Any use of this information is solely at your own risk.