Are You Ready to Comply With GASB 96?

Based on the standards established in GASB Statement No. 87 Leases, GASB Statement No. 96, Subscription-Based Information Technology Arrangements (SBITAs), requires organizations to include these arrangements on their balance sheet.

Finance teams may wonder where to begin as they work to get a handle on the scope of the new requirement. GASB defines a 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”.

Getting Started

The discovery phase is particularly important to the implementation of GASB Statement No. 96. A large part of the overall work of implementing takes place during this phase. Here are some tips to get started:

Consult with your IT Department. You may first want to determine their understanding of the software your entity uses. IT staff will be one of your best resources. They may already be tracking the software your organization uses, and they are likely to know systems in use because of server, firewall, back up and maintenance requirements involved with on-premise systems. They may not be as familiar with software systems maintained in the cloud or platform as a service (PaaS) arrangements your organization uses. Still, this is a great place to start.

Contact department directors and managers across your organization to find out about systems used in their operations. These individuals are likely to know about major systems in use or be able to point you to others in their department that can provide more detailed information. This is also a good opportunity to educate these individuals about the new standard and make them aware that any future purchases of software should be handled differently than they have in the past.

Find out about software platforms in use throughout the organization. As a finance department staff member, you are probably at least aware of systems that may impact the general ledger, like point of sale or other cash collection related systems. But you may know less about programs related to other operations within your organization, such as public safety, public works, maintenance, fleet management, educational tools, or records management. Reach out to these departments to find out about internal systems they may be using.

Research your organization’s contracts and board minutes for significant subscription-based agreements. This is likely to take some work, because these agreements may not carry specific terms like “subscription,” just as many of the leases under GASB 87 have contracts that never used the word “lease”.

Digging In

Once you have taken these discovery steps, you will be ready to tackle the actual accounting work. Here are suggestions to keep you on track:

• Remember what you learned during your implementation of GASB 87 – start early! Familiarize yourself and your implementation team with the pronouncement, implementation guide Q&As, and attend training.
• Identify the key stakeholders such as the IT Director and department directors.
• Gather IT contracts to determine the population. These include: cloud products, licenses to software, and applications. Contracts that ONLY provide IT support services are exempt.
• Review the general ledger for recurring expenditures that could pertain to possible SBITA agreements not housed within your IT department.
• If the contract population is large for your organization, consider evaluating software providers to help you manage SBITAs. You may also need to contact a consultant to help evaluate contracts.
• Evaluate the contracts to determine if they meet the definition of a SBITA. Track your determination of each contract reviewed and the department(s) using the SBITA.
• Ask these questions: If there is no stated or implied interest rate, what is your latest borrowing rate? Are there any implementation costs or other payments made at commencement? Are there any other SBITA activities? Here’s a “how to know” whether to expense or capitalize costs:
  • Preliminary Project stage – expense
  • Initial Implementation stage – capitalize
  • Operational/Maintenance stage – expense
• Document the subscription term under each agreement and other pertinent contract information, such as changes in payment terms.

On the Path to Compliance

Before you know it, you will be on the path to compliance with this new standard. For information about implementing GASB 87 or GASB 96, contact us. We are here to help.

Authored by Claire Wootton, CPA.

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