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What is a GASB 96 Subscription?

What is a GASB 96 Subscription?


Per GASB 96, a SBITA (Subscription Based IT Agreement) is a contract that conveys control of the right to use another party’s 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.

What makes a Subscription a SBITA?

To qualify as a Subscription-Based Information Technology Arrangement (SBITA) under GASB 96, a subscription must meet specific criteria outlined in the standard. These criteria are as follows:

  • The Right to Use: The contract must convey control of the right to use another party's IT software, either alone or in combination with tangible capital assets (the underlying IT assets), as specified in the contract.
  • Alone or in Combination with Tangible Capital Assets: The subscription may involve using IT software alone or in combination with tangible capital assets. If the contract includes both IT software and tangible capital assets, the costs of each component must be evaluated. If the software component is insignificant when compared to the cost of the tangible capital asset,
  • Controlled for a Period of Time: The government entity should have control over the underlying IT assets for a specified period. This period includes the noncancellable right to use the IT assets, as well as any relevant extension or termination options. The determination of the lease term depends on factors such as the government's option to extend or terminate the arrangement and the vendor's options in this regard.

Additional criteria for GASB 96 Subscriptions

In addition to the three criteria listed above, there are other factors to consider when evaluating a SBITA that will impact the classification.

Is the contract a licensing arrangement that provides a perpetual license to use a vendor's software?

A perpetual software license, often referred to as a "perpetual license," is a type of software licensing arrangement that grants the licensee the right to use a specific version of the software indefinitely. In other words, it provides the purchaser with the right to use the software without any predetermined expiration date. This means that the software can be used for an unlimited duration, as long as the terms of the license agreement are adhered to. Typically, perpetual licenses involve a one-time upfront payment, as opposed to subscription-based licenses, which involve regular, ongoing payments.

Whether these agreements apply is dependent on when the payment is occurring. If the lump sum payment occurred prior to the entity’s restatement date, the agreement will not qualify as a SBITA as there are no remaining payments. 

If the lump sum payment occurs after the restatement date, then the agreement would potentially qualify as a SBITA (dependent on the other determination factors).

Note: Perpetual licenses are different from auto-renewing licenses. 

Is the contract renewed on an annual or monthly basis?

There are many software vendors that offer services on a month-to-month or year-to-year basis. A key factor is evaluating the term length and cancellability of the agreement. 

  • If the renewal period is for a defined number of 12 month periods (no vendor option to terminate after each 12 month period), then the agreement would qualify as a SBITA regardless of whether the customer is reasonably certain to exercise the extension options or not, due to its maximum subscription term. If there is an indefinite number of one year renewal options, it will depend on which parties may cancel/opt out of the yearly renewal. 
  • If only one party (normally the customer) has the ability to provide notice and cancel the yearly renewal, then the customer will need to estimate the number of yearly renewals you are reasonably certain to extend. This will represent the subscription term, and the agreement will qualify under the GASB 96 standard (all other factors considered). If both parties are able to give notice of non-renewal, then the agreement is considered a year-to-year or cancellable agreement, which does not qualify as a SBITA under the GASB 96 standard.

What entities need to gather to evaluate their SBITAs?

In many cases, entities may find they just have invoices or quotes for their SBITAs. In order to make the most informed classification of these agreements, additional information is needed:

  • Start date of the agreement
  • Term or end date
  • Payment amounts
  • Payment dates/frequency
  • Indication on whether or not the agreement can be renewed perpetually
  • Extension options
  • Termination options

IT documents can be decentralized

A key pain point for governments when beginning to implement the GASB 96 standard is the decentralization of their IT documents. Multiple departments in an organization could have their own IT subscriptions and systems of record. To ensure completeness and avoid potential risks, accounting experts suggest gathering all possible SBITAs and assessing each contract to determine if it is a SBITA or not. 


What’s important here?

The collection, review, and classification of SBITAs is a complex and time consuming process for government entities. The first year will be the most challenging, but once all information has been properly input into a centralized location, public finance teams will have developed the framework for compliance with not just GASB 96, but later pronouncements as well. This will also help the organization to avoid future issues with auditing or handling complex contracts going forward.