Your Definitive Guide to Understanding GASB 96 SBITA

February 20, 2023
Lease Management

The Governmental Accounting Standard Board, also referred to as GASB, is an independent and non-profit organization responsible for offering relevant guidance on accounting and financial reporting for governmental entities.

The objective behind offering guidance is to ensure that the accounting and financial reports and information issued by governmental entities are useful and comprehensible to all users.

The recent GASB 96 SBITA has been released keeping in mind the rapid digital revolution and enhanced usage of subscription-based information technology arrangements (SBITA).

GASB 96 hopes to standardize and monitor the accounting and financing disclosure patterns around subscription-based payments for government end-users and cloud-based software contracts.

The frequency with which GASB issues new accounting and financial standards is not fixed. It issues new statements as and when required depending on factors like current economic trends, financial issuing environment, digital transformations, etc.

It is safe to say that the statements issued by GASB undergo strict research and developmental phases. GASB invites numerous experts in the fields as well as government officials, financial stakeholders, accounting specialists, etc., to make informed and effective decisions.

What is SBITA?

SBITA or subscription-based information technology arrangements can be understood as a contract allowing one party to use a vendor's information technology software alone or in combination with its tangible capital assets.

The duration of the arrangement is specified in the contract. The extension terms and termination terms are also mentioned in the subscription contract.

SBITA contracts can also be simplified and understood as lease agreements and lease accounting standards.

A lease agreement is a contract between two parties with details like terms of use, duration, abatement terms, etc. Similarly, SBITA is also a modern-day contract between two parties regarding the usage of cloud services.

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What is GASB 96?

Now that we know what SBITA is, let us attempt to understand GASB 96. It is a statement issued by Governmental Accounting Standards Boards identifying best practices for financial and accounting reporting.

Mentioned below are the exact roles GASB 96 SBITA performs:

  • Defines a particular SBITA in accordance with itself
  • Determines that each SBITA contract results in an intangible right to use an asset along with a subsequent subscription liability
  • Requires all governmental entities to properly disclose financial reports concerning SBITAs
  • Properly defines and elaborates everything associated with the subscription period, like duration, terms of use, cancellable or non-cancellable rights, etc.
  • Offers specific and elaborate capitalization standards for factors like implementation costs, liabilities, operating costs, etc.

What are the Exemptions of GASB 96 SBITA?

Certain exemptions for GASB 96 SBITA have been mentioned. It only takes into ambit IT support services in combination with the right to use other related tangible IT assets and capital. GASB 96 does not include standalone IT support services.

Other exemptions, rules, and factors of GASB 96 SBITA include:

  • As mentioned above, GASB 96 SBITA should include both the IT support service and a well as the use of a tangible IT capital asset. However, if the costs of the related IT capital asset exceed the cost of the IT support service, then it would fail to meet the criteria.
  • Any contract or licensing arrangements that allow the governmental agency uninterrupted access and license to use the vendor’s IT support service or software will also be exempted as it will be falling under the scope of GASB 51 condition about accounting and financial reporting for intangible assets.
  • Any governmental agency which it is utilizing IT support services from an IT vendor but at the same time providing others with a right to use its personal IT support services will not be eligible for GASB 96 SBITA.
  • Contracts that fall under the GASB 94 criterion of Public-Private and Public-Public Partnerships and Availability Payment Arrangements will also be exempted.

What is Short-Term SBITA?

As the name suggests, short-term SBITAs refer to subscription terms falling under a contract of 12 months or less.

All the extension terms fall under the 12-month stipulated duration. If either of the party involved in the SBITA contract wants to cancel the contract, the party is expected to notify the other party and serve a notice period.

The short-term GASB 96 SBITAs are similar to GASB 87. Both terms consider any extensions as part of the initial contract. Additionally, both GASB 96 and GASB 87 stress all the terms possible for an extension rather than the organization’s possibility of using the option of extension.

What are the Recognitions and Measurements of an SBITA?

Once an SBITA subscription term and contract begins, the governmental agency must identify a subscription liability and a subscription asset in the very beginning.

The subscription terms can be understood as the duration within which the governmental agency has the right to use the IT support service interrupted.

This is very crucial for the governmental entity to set a subscription liability as it is acquiring the full right to use an IT support service from the IT vendor.

The other recognitions and measurements of SBITA under which the governmental agency can continue using the IT support services apart from the stipulated termination period are:

  • It is certain that the governmental entity will use the option of extension of the contract
  • It is certain that the governmental entity will not use the option of extension of the contract
  • It is certain that the IT vendor will use the option of extension of the contract
  • It is certain that the IT vendor will not use the option of extension of the contract

What is an SBITA Subscription Liability?

Just like lease liabilities are calculated in a lease agreement, similarly, subscription liabilities are also calculated in an SBITA subscription contract.

In the beginning, an approximate liability is calculated after considering the total payments which will be made by the governmental agency to the IT vendor during the duration of the subscription contract.

The interest rates that the IT vendor may or may not charge the agency are also included in the subscription liability.

In case the interest rate has not been decided, the agency can estimate an approximate interest rate based on the initial liability and asset value calculation.

Under the GASB 96 SBITA guidelines, other payments which should also be included in the calculations for the subscription liability are:

  • Fixed payments
  • Variable payments
  • Fines incurred due to penalties or early termination
  • Incentives
  • Other payments mentioned in the subscription terms and contract

What are the Stages of SBITA Accounting?

SBITA accounting can be divided into four stages. These stages are not just applicable to GASB 96 statement but all the other statements as well.  

1. Preliminary Stages

This is the initial stage in which the conceptual formulation is done along with determining what kind of technology and IT support services are required by the governmental agency.

After evaluating all the alternatives and asset life cycle management, the final decision is taken. In this stage, the SBITA accounting is done as per the expenses incurred.

2. Initial Implementation Stage

This is the second stage in which the selected IT support service is tested.

The other factors related to the IT service, like design, configuration, coding, etc., are also determined. After successfully dealing with all these factors, the installation is done.

This stage has no major expenses as the IT service is already capitalized in the first stage.

3. Operation and Additional Implementation Stage

In the third stage, any problems which might arise related to the IT service are resolved. This also involves troubleshooting, maintenance, etc.

The accounting is done as per the expenses which might or might not be incurred.  

4. Training

The last stage is the training stage which is an amalgamation of all the three previous stages. Continuous resource development and training are carried out in this stage to ensure the smooth running of the IT services.

In this stage also, the SBITA accounting is done as per the expenses incurred.

What are the Disclosure Requirements Under GASB 96 SBITA?

The disclosure requirements mentioned for GASB 96 are not very complex or lengthy to understand. It is important to note that short-term SBITA is automatically excluded from the disclosure requirements and agreement.

The other disclosure requirements are:

  • All the variables not included in the measurement of subscription liability due to any reason must be disclosed.
  • Any SBITA commitments are decided after the calculation of the subscription liability.
  • Any losses incurred during the subscription term must be disclosed and adjusted following the subscription asset.
  • The maturity of the subscription liability every five years must be disclosed and reported. Additionally, the maturity amount should be separated into principal and interest.
  • Any penalties and fines incurred during the subscription period must be disclosed.

What is the GASB 96 SBITA Implementation Date?

The GASB 96 SBITA has been in effect since the beginning of the fiscal year on June 15, 2022.

Similar to other GASB statements of the past, GASB 96 applies to state governmental entities that are paving their way to subscription-based information technology agreements.

SBITA Example

To help you understand SBITA more accurately, we have mentioned an example using SBITA terms. For instance, Florida Films uses Hubler to account for its lease portfolio.

The SBITA contract can include some of the points mentioned below:

  • The GASB 96 contract is different from and does not meet the criterion of GASB statement 94 of Public-Private and Public-Public Partnerships and Availability Payment Arrangements
  • Florida Films can use the IT solutions and services for the stipulated time period with a combination of tangible capital IT assets
  • The subscription contract is a non-cancellable, defined, and finite term of five years

1. Start Date: 8/02/2023

2. End Date: 08/02/2028

3. First Payment Date: 8/02/2023

4. Payment: $10,000 annually, paid in advance on 8/02/2023

Closing Thoughts

Given the continuous digital transformation and evolution, accounting and financial reporting activities will become highly complex and sophisticated.

This sophisticated mechanism will bring about a positive reform in the finance and accounting department, but organizations and companies will need assistance to understand these guidelines efficiently and effectively.

If you are also worried about the complexities of GASB 96 SBITA, do not worry. Reach out to us at Hubler and let us resolve all your financial accounting and reporting woes.

Some of the solutions we offer at Hubler are lease management, asset management, expense management, supplier risk management, help desk solutions, and much more.

Book a demo and get started today.

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