What are Subscription-based IT Arrangements?

Subscription-based information technology arrangements (SBITA) is a contract that conveys control of the right to use another party’s IT software, alone or in combination with tangible capital assets, as specified in the contract for a period of time in an exchange or exchange-like transaction. Examples of this would be cloud-based IT environments, Smart Finance and Banyon.

What do I need to do with these SBITAs?

The entity will need to recognize a right-to-use subscription asset (intangible asset) and a corresponding subscription liability.

  • Right-to-use Subscription Asset
    • Initially measured as the SUM of 1) the initial subscription liability amount PLUS 2) payments made to the SBITA vendor before commencement of the subscription term PLUS 3) capitalizable implementation costs LESS 4) any incentives received from the SBITA vendor at or before commencement
    • Amortization of the subscription asset should be recognized as an outflow of resources over the subscription term
  • Subscription Liability
    • Subscription liability should be recognized at commencement of the subscription term and measured at the present value of subscription payments expected to be made
    • Future subscription payments should be discounted using the interest rate the SBITA vendor charges the government or the 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 (interest expense) in subsequent financial periods

What are the 3 stages for activities associated with SBITA?

  • Stage 1 – Preliminary project stage (expensed as incurred)
    • Activities such as: evaluate alternatives, determine needed technology, select SBITA vendor
  • Stage 2 – Initial implementation stage (capitalized as addition to subscription asset)
    • All support charges necessary to place subscription asset into service
  • Stage 3 – Operation and additional implementation stage (expensed as incurred unless meeting specific capitalization criteria)
    • Activities such as: subsequent implementation activities, maintenance, and other activities for ongoing operations regarding SBITA

What if my SBITA contract contains multiple components?

If a SBITA contract contains multiple components, account for each component as a separate SBITA, allocate contract price to different components. If it is not practical to separate them out you can leave them combined.

Exception for short-term SBITAs

Maximum possible term of 12 months or less in contract, including options to extend regardless of probability of extension.

When does this start?

GASB 96 is effective for fiscal years beginning after June 15, 2022.

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