Over the past few years, the Governmental Standards Account Board (GASB) created several new accounting standards, overhauling critical areas of government accounting.
One of these is GASB 96. GASB 96 changes how GASB-following entities report subscription-based information technology arrangements to make financial statements more valuable to their users.
With the compliance deadline approaching, organizations should act ASAP to implement GASB 96. This article will discuss the risks of waiting to comply with GASB 96 and the benefits of leveraging software to implement the new standard.
First: What is a SBITA?
A subscription-based information technology arrangement, or SBITA, is any IT software subscription contract that falls under GASB 96’s purview.
The following criteria can qualify a subscription arrangement as a SBITA:
- It conveys control of the right to use another party’s IT software for a specified period
- That right to use is alone or in combination with tangible capital assets, where the tangible capital asset is insignificant when compared to the IT software
- The transaction is an exchange or exchange-like transaction
Note, however, that not all contracts will meet these criteria. It is still helpful to track non-SBITA contracts, but their accounting and reporting treatment can look different.
A SBITA term can include the following:
- A non-cancelable period
- Extension options the government or vendor is reasonably certain to exercise
- Termination options the government or vendor is not reasonably certain to exercise
Examples of potential SBITAs your organization may use include:
- Budgeting software
- Data backup and storage
- ERP systems
- Fixed asset software
- Tax collection software
- Utility metering
5 Risks of Waiting to Implement GASB 96
Implementing new accounting standards can take a substantial amount of time and delaying implementation of the new GASB 96 standard may leave you at risk of the following:
1. Locating all of your subscription contracts may be more challenging than you think
GASB 96 exists to make financial statements more useful by reporting all your SBITAs on your financial statements. That starts with finding each of these contracts and determining who is responsible for them.
This process can vary based on how your organization contracts with IT software providers. For example, some organizations have their procurement departments handle all contracts, while other organizations allow departments or even separate entities to procure software and manage contracts for the software they use. Regardless, finding and collecting all of your subscription contracts can take substantial time and resources, so you don’t want to wait too long to get started.
2. Extracting subscription contract data can be tedious and complex
Once you gather the details on your SBITAs, you must extract key contract data and organize it to be able to prepare accurate schedules, journal entries, and note disclosures.
You can encounter numerous challenges while doing this since contracts can be structured differently. For example, you might find some subscription contract files incomplete or discover that certain arrangements are “hard copy versions only.” As a result, the time needed to perform data extraction can be unpredictable.
3. Increased risk of errors
Waiting too long to implement GASB 96 leaves you less time to correct any issues that arise during the process. What’s more, you may feel rushed with less time to implement, which can increase the chances that errors will be made.
For example, subscription payments aren’t the only expenses you should be aware of under GASB 96. You must also account for project costs, such as those generated through finding, implementing, and maintaining software. These costs may have a different accounting treatment than subscription payments. You will need extra time to understand these differences and apply the proper procedures.
Errors can cause you to fall out of compliance after the GASB 96 implementation deadline. It also takes financial and human resources from other critical tasks to rectify them.
4. Lack of time to train your team
Even if you make the necessary changes to GASB 96 on time, your team must familiarize themselves with the procedures involved in complying with the new standard. With many teams already spread thin, this can often present a challenge.
Not allowing ample time to implement and train your team on the standard can make maintaining compliance more challenging.
5. You may miss the deadline to comply with GASB 96
The main risk in waiting to implement the new GASB 96 standard is that you could miss the deadline. Your organization must comply with the new standard in time for audit season to avoid significant issues.
Finance and accounting teams will need to learn and apply the new journal entries and disclosures GASB 96 requires for SBITAs. They may also have to adjust the accounting procedures for existing SBITAs for all fiscal years presented in the financial statements.
Large teams may have less of an issue, given the resources at their disposal. But for small teams, who are already resource constrained, implementing and adhering to the new standard can be particularly challenging.
5 Benefits of Using a Subscription Management Solution to Implement GASB 96
Subscription management software can help organizations operate more efficiently and comply with the new reporting standards more easily. Not only do these solutions provide structure to current SBITA reporting, but they make ongoing compliance much simpler.
Here are some specific reasons to consider investing in a subscription management solution:
1. Easy GASB 96 implementation with minimal headache
If implementing and maintaining GASB 96 compliance sounds intimidating, a subscription management software solution might be worth consideration. These solutions help automate numerous tasks and time-consuming processes, such as manual data entry and extracting subscription contract data.
Once you have fully implemented GASB 96, the software streamlines the accounting procedures pertaining to your SBITAs. As a result, journal entries and accurate financial statement preparation become much faster.
2. Ensure data accuracy
Implementing GASB 96 starts with understanding, gathering, and organizing SBITA contract data. Validating your data is vital.
Some may try spreadsheets, but these can be unwieldy and prone to errors. For example, inputting an incorrect formula or the wrong data into just one cell can cause a cascade of errors in numerous other areas. There’s also the problem of multiple users accessing the same spreadsheet. This can cause errors to go unnoticed or lead team members in different departments to accidentally override others’ changes to spreadsheets.
Subscription management software can validate formulas and ensure that those formulas and all data are correctly applied consistently in all areas. It can also show a more precise record of changes.
3. Prepare for future standards and compliance
The first year of operating under any new regulation can be the most challenging. However, utilizing a solution to centralize all information will make it much easier to maintain GASB 96 compliance in the future and help provide a framework for future pronouncements.
Working with an industry-leading technology solution can help lift some of the burden of understanding and preparing for future accounting standards off your finance team.
4. Reduce information silos
Some entities store all contracts with the finance department, but others may have them scattered across numerous systems, teams, departments, or other entities. The decentralized approach, in particular, can create information silos that make it difficult to track your subscription arrangements efficiently and effectively.
An adequate software solution knocks down walls between SBITAs across entities by housing your arrangements in a single data warehouse, thus increasing visibility. This can help teams across the organization access any arrangement, creating a more effective way to organize, manage, and properly account for SBITAs.
5. Secure vital subscription contract data
As mentioned above, ensuring spreadsheet accuracy can be difficult, and equally challenging is maintaining spreadsheet security.
Spreadsheets often need to be utilized by many team members within an organization. They are accessed via shared folders, emailed to others (both internally and externally), photocopied, and printed – meaning important data can be spread across multiple computers, storage centers, and servers.
As accounting for SBITAs becomes an important part of your organization’s financial reporting, you should consider a solution that offers controls over data security and disaster recovery that spreadsheets do not provide. Subscription management software provides important security features like password protection and user access controls.
How DebtBook Can Help
Waiting too long to implement GASB 96 creates numerous risks — including errors that can take significant time and resources to resolve. In contrast, implementing GASB 96 as early as possible will help ensure a smooth transition and provide enough time to address any problems that arise.
But if getting up to speed seems overwhelming, a software solution like DebtBook could be one of your greatest assets. DebtBook’s subscription management capabilities can help you with organization and data extraction, schedule creation, and ongoing compliance for GASB 96.
Schedule a demo today to see how easy GASB 96 implementation can be with DebtBook.
- SBO Perspectives Podcast – "GASB 96: Take a “Byte” out of SBITA"
- Building An Action Plan For GASB 96 Compliance
- Planning & Preparing for GASB 96
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.