Components of a Subscription Term
The subscription term includes:
- Noncancelable periods – The fixed portion of the contract that cannot be terminated by either party.
- Renewal options – Periods covered by options to extend the contract if it is reasonably certain the government will exercise them.
- Termination options – Periods covered by options to terminate if it is reasonably certain the government will not exercise them.
- Fiscal funding or cancellation clauses - If these clauses are reasonably certain not to be exercised, the related periods are included.
Why the Subscription Term is Important
The subscription term directly affects the measurement of both the subscription liability and subscription asset. A longer term increases the value of recognized obligations, while a shorter term reduces them.
Getting this determination right ensures accurate reporting, transparency for stakeholders, and compliance with GASB 96.
Finance teams must carefully evaluate the likelihood of exercising renewal or termination options to avoid overstating or understating obligations.
What's Important Here?
The subscription term under GASB 96 is the enforceable period a government has the right to use subscription-based IT, including certain renewal and termination options.
It establishes the timeframe for recognizing subscription assets and liabilities, making it a key factor in accurate and compliant financial reporting.
