Determining the correct subscription term is critical because it directly affects the measurement of both the subscription liability and the subscription asset on the balance sheet. The longer the subscription term, the greater the total value of the liability and asset to be reported. Factors such as historical behavior, economic incentives, and contract terms should be considered when assessing whether renewal or termination options are reasonably certain.
It’s also important to note that the subscription term does not begin until the implementation period ends, that is, when the software is ready for use by the organization.
What's Important Here?
The subscription term defines how long a government has the right to use software under a SBITA and is a foundational element of GASB 96 accounting. It includes the noncancelable period and any renewal or termination options the government is reasonably certain to exercise.
Accurately determining the subscription term is important because it drives the calculation of the subscription asset and liability. Misjudging this period could result in incorrect financial reporting, so it’s important to assess the contract carefully and consider all relevant factors.
