GASB 96: The Big Question About SBITAs

With all the talk of GASB 87, Leases, higher education entities also have questions about GASB 96. Much like they do long-term leases, most of these entities have numerous multi-year subscriptions for software and other technology products (and experience significant cost savings as a result).

GASB 96 was based on similar fundamentals to GASB 87. Both standards require organizations to record right of use assets and related liabilities for the contracts that fall within the scope of the standards. While GASB 96 brings on reporting requirements similar to those for leases under GASB 87, organizations shouldn’t let the time and effort to record these contracts override good business decisions in negotiating pricing discounts through long-term agreements.

The Basics on GASB 96

GASB Statement No. 96 provides guidance on the accounting and financial reporting for subscription-based information technology arrangements (or SBITAs). It defines an SBITA as “a contract that conveys control of the right to use another party’s (a SBITA vendor’s) information technology (IT) software, alone or in combination with tangible capital assets (the underlying IT assets), as specified in the contract for a period of time in an exchange or exchange-like transaction.”

GASB 96 also establishes SBITAs as right-to-use subscription assets and requires you to recognize it as an intangible asset and a corresponding liability on your balance sheet. So it’s no surprise that we’re hearing concerns from our higher education clients concerned about this change in financial reporting. Some organizations have more SBITAs than they do leases, resulting in an even bigger impact on their statements.

The Question at Hand

One particular question we’ve heard is whether a cancelation provision in a contract would allow the organization to not record the SBITA. Per GASB 96, the answer is no — at least unless it’s reasonably certain the cancelation will be exercised (which is generally not the case). Specifically, the statement reads:

A government should reassess the subscription term only if one or more of the following occur:

  1. The government or SBITA vendor elects to exercise an option even though it was previously determined that it was reasonably certain that the government or SBITA vendor would not exercise that option.
  2. The government or SBITA vendor elects not to exercise an option even though it was previously determined that it was reasonably certain that the government or SBITA vendor would exercise that option.
  3. An event specified in the SBITA contract that requires an extension or termination of the SBITA takes place.

GASB 96 is effective for fiscal years beginning after June 15, 2022. So organizations should actively work to identify these contracts and prepare for the implementation of the new reporting requirements.

There might be a little more effort and cost to record SBITA agreements under GASB 96 than under previous standards. However, the savings of a multi-year agreement is well worth the inconvenience. And you can always reach out to your higher education CPAs for help in recording these agreements.


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