Subscription Based IT Arrangements for Government Entities
This article is relevant to entities following generally accepted accounting principles as issued by the Government Accounting Standards Board (GASB). In general, this article does not apply to for-profit or non-profit entities.
Most governments have put the final polishing touches on their implementation of GASB 87 – Leases. So, it’s time to turn the attention to GASB 96 – Subscription Based IT Arrangements (SBITAs). The overall concept and underlying accounting between the two standards are relatively consistent. This article will provide a general overview of what a SBITA is (and what it isn’t) along with an important clarification for an item found in the GASB 2023 Implementation Guide.
In GASB 96, SBITA is defined as “a contract that conveys the right to use another party’s information technology software, alone or in combination with tangible capital assets, as specified in the contract for a period of time in an exchange transaction.” In plain terms, a SBITA is the government’s right and ability to use the software for a duration of time, but never own the software. This includes arrangements such as software as a service (SaaS), and infrastructure as a service (IaaS). SaaS or IaaS may also be referred to as cloud-based computing arrangements. SaaS provides only the software component, while IaaS provides both the software and the hardware items such as storage, network, servers, etc.
A few examples of items that do not qualify as SBITAs:
- Any software in which the end-user owns the software and is not licensed based on a subscription.
- Contracts that only provide IT support services.
- Contracts that are for the combination of both IT software and hardware, in which the software component is insignificant to the total contract. These would presumably be accounted for as a lease of IT equipment under GASB 87.
The recently issued GASB 2023 Implementation Guide also provides additional clarification on the important concept of a perpetual license, as follows:
“If a licensing agreement for a vendor’s software automatically renews until cancelled, it is notconsidered perpetual. Instead, each renewal year is considered an option to terminate, and since the agreement includes an option to terminate, it is not a purchase. In contrast, a truly perpetual license is considered a purchase, would not include a provision for termination, and would follow Statement 51, Intangible Assets.”
The remainder of the accounting regarding subscription terms, modifications, and methods for computing the initial subscription liability and right-to-use intangible are in-line with GASB 87. There are some nuances to GASB 96 regarding the different stages of software implementation and operation, but these are relatively straightforward and can be applied using best judgment.
GASB 96 is effective for reporting periods beginning after June 15, 2022.