United States

GASB issues guidance for subscription-based IT arrangements


The Governmental Accounting Standards Board (GASB) recently issued Statement No. 96, Subscription-Based Information Technology Arrangements, to provide guidance on the accounting and financial reporting for cloud computing and similar subscription-based information technology arrangements (SBITAs). Similar to the provisions of Statement No. 87, Leases, Statement No. 96:

  • Defines a SBITA as a contract that conveys control of the right to use a SBITA vendor’s 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.
  • Requires governments with SBITAs to recognize a right-to-use subscription asset (an intangible asset) and a corresponding subscription liability. 
    • The subscription liability should be initially measured at the present value of subscription payments expected to be made during the subscription term. Future subscription payments should be discounted using the interest rate the SBITA vendor charges the government, which may be implicit, or the government’s incremental borrowing rate if the interest rate is not readily determinable. Amortization of the discount on the subscription liability should be recognized as an outflow of resources (for example, interest expense) in subsequent financial reporting periods. 
    • The subscription asset should be initially measured as the sum of (1) the initial subscription liability amount, (2) payments made to the SBITA vendor before commencement of the subscription term, and (3) capitalizable implementation costs, less any incentives received from the SBITA vendor at or before the commencement of the subscription term. Amortization of the subscription asset should be recognized as an outflow of resources over the subscription term.
  • Provides an exception for short-term SBITAs that have a maximum possible term of 12 months (including any options to extend, regardless of their probability of being exercised). Subscription  payments for short-term SBITAs should be recognized as outflows of resources.
  • Describes the accounting for outlays other than subscription payments, including implementation costs of SBITAs.
  • Requires disclosures of essential information regarding SBITAs, other than short-term SBITAs.

The Statement is effective for fiscal years beginning after June 15, 2022, and all reporting periods thereafter. Early application is encouraged.

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