In the context of GASB 96, which governs how governments and public entities account for Subscription-Based Information Technology Arrangements (SBITAs), the structure of a month-to-month contract is important.
GASB 96 only applies to agreements with a noncancelable period—a term during which neither party can cancel the contract without incurring a penalty. Most month-to-month subscriptions do not meet this requirement, because they can be terminated at any time, making them cancelable by nature.
As a result, many month-to-month software arrangements are not considered SBITAs under GASB 96 and do not need to be recorded as subscription assets and liabilities.
However, if the contract includes other terms like a minimum usage period or cancellation penalties, those factors might affect whether it qualifies as a SBITA.
What’s important here?
Month-to-month software subscriptions are generally not subject to GASB 96 because they typically lack a noncancelable period. Since either party can usually end the arrangement at any time without penalty, these subscriptions do not meet the definition of a SBITA and therefore don’t require the recognition of a subscription asset or liability.
Still, it’s important to carefully review the terms of each agreement—if there’s a required minimum commitment or cancellation fee, it may fall within the scope of GASB 96.
