GASB 96 Kicks Off in 2023: What to Know & Do

Last updated on January 31st, 2023

Along with the new year comes the start date of a new accounting and reporting requirement – namely, GASB 96, which arose as a result of migration from legacy IT systems (requiring the purchase of a license or title) to cloud-based solutions (requiring subscriptions).

If your fiscal year started July 1, 2022 or later, your financial statement must reflect GASB 96.

Who is subject to GASB 96? All state and local government entities. This includes general purpose governments, public benefit corporations and authorities, public employee retirement systems, public utilities, hospitals and other healthcare providers, and colleges and universities.

What does it cover? Subscription-based information technology arrangements (SBITAs). A SBITA is “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.” (Source: GASB Summary of Statement No. 96) Examples include office, calendar and email tools; online conferencing or payment tools; cloud computing arrangements; cloud-based Enterprise Resource Planning systems; and more.

In addition to subscription payments, costs can be accounted for based on whether they were part of a preliminary project, initial implementation, or operational and additional implementation stage. (Training costs should be expensed when they’re incurred, regardless of stage.)

Short-term SBITAs – defined as having a maximum possible term, including options to extend – to 12 months or less are excluded from GASB 96.

What needs to be disclosed? Information including the amount of the subscription asset, accumulated amortization, other payments not included in the measurement of a subscription liability, principal and interest requirements for the subscription liability, and more.

When do we need to get started? If you haven’t already, get started now – it’s especially important if your fiscal year end is June 30, 2023 or September 30, 2023. As was the case for GASB 87 Lease Standards, you need time to gather and analyze all SBITA-related contracts to not only determine which ones fall under GASB 96, but also their components. If a contract has multiple components, each component should be accounted for as a separate SBITA or non-subscription component, with contract prices allocated accordingly (unless a best estimate price allocation can’t be determined; then, it can be treated as one SBITA).

Why did the Government Accounting Standards Board adopt GASB 96? The Board adopts standards when the costs incurred “are justified when compared to the overall public benefit.” In this case, perceived benefits include more consistent accounting and reporting and more comparable information about SBITAs. In addition, certain aspects of GASB 96 provide cost relief, like the exclusion of “contracts with stand-alone tangible capital assets and contracts with a combination of a tangible capital asset and an insignificant software component”; the ability to “report a multi-component contract as a single SBITA when determining that a best estimate to allocate the contract price to multiple components is not practicable; and permitting but not requiring “governments to include capitalizable outlays associated with the initial implementation stage and the operation and additional implementation stage in the measurement of the subscription asset recognized at transition.” (Source: GASB Summary of Statement No. 96)

For additional information, refer to these Federal and New York State resources:

You may also want to consider vetting and possibly using a GASB 96 platform or software service as a resource.

2023 is going to be a big year in terms of GASB changes and compliance. Get peace of mind that your municipality complies by partnering with an accounting, tax, audit, and advisory firm you can trust. RBT CPAs has been serving municipal clients in the Hudson Valley and beyond for over 50 years. Give us a call and let’s see what we can do for you.