GASB 96: On-Premise Software and Cloud Software
GASB 96 is a government accounting standard that establishes how organizations should account for SBITAs. These are contracts where a government or public organization uses software over a defined period, typically through a subscription rather than owning the software outright.
The difference between on-premise software and cloud software is important under GASB 96 because only certain types of software arrangements are considered SBITAs and therefore subject to reporting requirements.
The standard applies to arrangements where a government controls the right to use the software and there is a non-cancellable subscription term. It does not apply to contracts for services that only provide access to vendor-controlled software without a right to use it.
What’s Important Here?
GASB 96 only applies to subscription-based arrangements where the organization has control over the right to use the software, most commonly cloud-based solutions. These arrangements require recognition of a subscription asset and corresponding liability on the balance sheet.
Traditional on-premise software, where the organization purchases and hosts the software internally, is generally excluded from GASB 96 unless it includes a qualifying subscription component.
Identifying whether a software contract falls under GASB 96 is a crucial step in ensuring accurate financial reporting and avoiding compliance issues.
