Under GASB 96, when a government commits to using a subscription service for a defined period, it must recognize both:
- A subscription asset, representing the right to use the underlying IT resource, and
- A subscription liability, representing the present value of future payments owed for that subscription.
How Subscription Liabilities are Measured
The liability is initially measured at the present value of subscription payments expected to be made during the subscription term. This includes fixed payments, variable payments tied to an index or rate, and certain termination penalties if reasonably certain to be incurred.
Over time, the liability is reduced as payments are made, similar to how lease liabilities are amortized under GASB 87. Interest expense is also recognized to reflect the financing component of the obligation.
Why Subscription Liabilities are Important
Recognizing subscription liabilities ensures transparency by putting long-term technology commitments on the face of financial statements. This visibility helps stakeholders understand the true scale of financial obligations and provides auditors with a clearer picture of compliance with GASB standards.
For finance teams, properly managing subscription liabilities supports better budgeting, forecasting, and accountability. Without recording these liabilities, governments risk understating obligations and misrepresenting their financial position.
What’s important here?
A subscription liability under GASB 96 represents the present value of payments governments owe for subscription-based IT services.
Recording these liabilities provides transparency, keeps financial statements compliant, and helps leaders better manage long-term commitments.
