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What Overall Effect did GASB 96 have on Accounting for Subscriptions?

What Overall Effect did GASB 96 have on Accounting for Subscriptions?


GASB 96, the Governmental Accounting Standards Board's standard for Subscription-Based Information Technology Arrangements (SBITAs), has brought significant changes to the accounting and reporting of subscriptions in state and local government entities.

What were some of the effects of this new standard?

Some of the overall effects of GASB 96 include:

  • Standardization: GASB 96 established a standardized framework for accounting and financial reporting of SBITAs. It created consistent rules and guidelines for recognizing, measuring, and disclosing these arrangements in the financial statements of government entities. This standardization enhanced the comparability of financial reporting across different government bodies.
  • Improved Transparency: GASB 96 aimed to enhance transparency in financial reporting. It required government entities to provide detailed information about SBITAs in their financial statements, including the nature and financial impact of these arrangements. This improved transparency benefits stakeholders, such as taxpayers, investors, and oversight bodies, by providing a clearer understanding of the government's financial commitments related to subscriptions.
  • Compliance and Documentation: Government entities had to establish processes to evaluate and document whether their IT contracts qualified as SBITAs under GASB 96. This required a systematic approach to assessing each subscription, ensuring that it met the criteria outlined in the standard.
  • Impact on Financial Teams: GASB 96 prompted government entities to evaluate the impact of the standard on their financial teams. The compliance process, including evaluating existing agreements and implementing the standard's requirements, required resources and expertise.
  • Efficiency Through Software: The introduction of GASB 96 led to the development of subscription management software tailored to the needs of government entities. These solutions help organizations operate more efficiently and reduce the burden on local teams to comply with new financial reporting standards.

Recognizing subscription liability and asset 

Another effect of the GASB 96 standard on accounting teams was the new recognition of subscription liabilities and assess. The subscription liability is calculated by determining the present value of the following types of subscription payments:

  • Fixed Payments
  • Variable Payments Based on Index or Rate
  • Variable Payments Fixed in Substance
  • Payments for Penalties for Terminating (if Termination is Reasonably Certain)
  • Subscription Contract Incentives
  • Other Reasonably Certain Payments

Subscription Liabilities exclude variable payments based on future performance from their calculation (i.e., payments based on the number of users, payments based on usage of the underlying asset).

  • Stated Rate (if available)
  • Implicit Interest Rate (if details are available to calculate)
  • Incremental Borrowing Rate

Subscription Assets are calculated by adding up the following:

  • Initial Liability Amount
  • Payments Made At or Before Commencement
  • Capitalizable Initial Implementation Costs
  • Less: Incentives Received At or Before Commencement
The Subscription Asset is amortized using the straight-line method over the shorter of the subscription term or the useful life of the underlying asset.

What’s important here?

GASB 96 has impacted the way public finance teams account for their subscriptions by creating a consistent and transparent framework for recognizing and reporting SBITAs. It improved financial reporting standards, increased transparency, and introduced tools to enhance efficiency in compliance. However, it also required government entities to allocate resources and ensure proper documentation of their subscription-based arrangements.