Under GASB 96, a Subscription-Based Information Technology Arrangement (SBITA) is a contract that allows a government or public organization to use software over a defined period of time. One of the key components of determining whether a contract meets the criteria of a SBITA is identifying the noncancelable period of the arrangement.
The noncancelable period is the length of time during which neither the government nor the vendor can cancel the subscription without incurring a penalty. This period forms the basis of the subscription term used to calculate the subscription asset and liability on the government’s financial statements.
In many cases, the noncancelable period aligns with the initial term of the contract. However, the full subscription term may also include optional renewal or termination periods, if it’s reasonably certain that the government will exercise those options.
The concept is similar to lease accounting under GASB 87, where the lease term includes all noncancelable periods plus any options reasonably certain to be exercised. For GASB 96, the noncancelable period plays a critical role in determining the amount of the liability and asset to be recorded.
What's Important Here?
The noncancelable period is the foundation of a SBITA’s subscription term under GASB 96. It represents the timeframe during which the contract cannot be terminated without penalty and directly affects the financial reporting of the subscription asset and liability.
Accurately identifying this period is essential to calculating the correct amounts to report. While optional renewal or termination clauses may extend the subscription term, only periods that the organization is reasonably certain to exercise should be included. Misjudging the noncancelable period can lead to incorrect recognition of subscription obligations, making it a critical detail in GASB 96 compliance.
