These types of arrangements are commonly referred to as Software-as-a-Service (SaaS) and often fall under the scope of GASB 96, which governs Subscription-Based Information Technology Arrangements (SBITAs).
How Hosted Software Subscriptions Work
In a hosted software model, the software provider manages everything on the back end, including:
- Software updates and maintenance
- Data storage
- Security and uptime
- Technical support
The subscribing organization pays for the right to use the software over a defined term, usually on a monthly or annual basis, without ever taking ownership of the underlying code or infrastructure.
In the public sector, tools like enterprise resource planning (ERP) systems and cloud-based document storage platforms are also commonly delivered via SaaS.
Example of a Hosted Service
A common example of a hosted software subscription is a government entity using a cloud-based budgeting tool. Rather than installing the software on its own servers, the government pays a subscription fee to access the tool online. The provider maintains the system, ensures data security, and handles updates all while the government staff logs in remotely to use the platform.
Other examples include:
- Online payroll systems
- Cloud-based accounting software
- Web-based document management platforms
Hosted software subscriptions typically meet the definition of a SBITA under GASB 96, meaning they need to be accounted for in financial statements using specific recognition and measurement guidelines. This includes identifying subscription terms, implementation costs, and potential liabilities.
What’s important here?
A hosted software subscription allows governments to access IT tools without owning them, making them more flexible and scalable. When these arrangements meet the criteria for a SBITA under GASB 96, they must be reported accordingly making it essential for finance teams to understand how these subscriptions work and how they differ from traditional software licenses.
