Time to Start Working on GASB Statement No. 96

Article

By Kevin Randolph, CPA

Many governments are close to wrapping up the final entries for the implementation of GASB Statement No. 87, Leases. It’s now time to focus attention on GASB Statement No. 96, Subscription-Based Information Technology Arrangements (SBITAs) since the Standard must be implemented for fiscal years beginning after June 15, 2022. For those government entities with June 30 and September 30 year ends, that means now.

Complexities of GASB-96 SBITAs Accounting

SBITAs accounting uses the same framework as lease accounting, with some notable differences:

  • SBITAs are subscription-based contracts that involve information technology software and associated tangible capital assets. However, if the software is insignificant in comparison to the tangible capital assets, the contract may be a lease. An example of such a contract would involve multifunction copiers with a software component.
  • Larger governments may be able to ‘sublicense’ SBITAs to smaller governments. In such a case, SBITA accounting may not apply.
  • Some SBITAs are perpetual licenses. In such a case, the government should refer to GASB Statement, No. 51 and may have an intangible asset. For large enterprise resource planning (ERP) systems that are SBITAs, implementation may involve multiple stages or ‘waves.’ In some cases, the ERP may take years to implement. Most leases involve a brief period between contracting and delivery.
  • Given that SBITAs involve technology and software, the underlying assets may be more easily impaired. It’s highly unlikely that governments use operating systems from the 1990s. However, many building leases may be from the 1990s or prior.

Similarities Between SBITAs and Lease Accounting

Other than the ‘wave’ implementation of an ERP system, many of the aspects of the SBITA accounting framework are the same as the lease accounting framework, including:

  • The definition of a SBITA, including the need for an exchange or exchange – like transaction, control, and recognition of embedded SBITAs,
  • The calculation of the SBITA term, including recognition of short-term SBITAs, (which may be more prevalent than short-term leases),
  • The recognition of the subscription liability uses the same procedure as calculations for a lease liability, including when the liability should be remeasured,
  • The recognition of incentives, components, combinations, modifications, and terminations, all use the same procedures as leases, finally,
  • Recognition in governmental funds, note disclosure and implementation provisions are all predicated on the lease framework.

ERP Systems that are SBITAs

Implementation of ERP systems that are SBITAs may result in quite different subscription asset balances than the subscription liabilities of implementation of GASB-96. This is due to the exclusion of certain outlays in the stages of implementation and beyond from asset capitalization.

Three stages of SBITA implementation occur:

Stage Activities Accounting
Preliminary Project Conceptual formulation, evaluation of alternatives, consideration of technology, and selection of alternatives all before contracting. Expense
Initial Implementation Contract signing including ancillary charges, configuration, design, coding, testing, installation, and conversion of essential data to make the system operational (not archived data), all prior to a designated ‘go-live’ date in the contract. Capitalize
Operational and Additional Implementation Maintenance, stabilization, troubleshooting, additional modules that do not increase efficiency or effectiveness and training. Expense

Key SBITA Accounting Tips

  • The SBITA is considered placed into service when the first independent module is operational, most commonly a general ledger.
  • If the other modules increase functionality or efficiency, they may be capitalized, but analysis needs to be performed.
  • Data conversion of legacy archived data is expensed. But if the data is vital to the system’s operation, it is capitalized.
  • Software training is expensed.

Proper accounting for GASB-96 SBITA can be complex. Our team of government advisors are here to help you with implementation.

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