GASB 96 (SBITAs) – EZLease Success Center

GASB 96 Overview

GASB 96, Subscription-Based Information Technology Arrangements (SBITAs), was released by the GASB in May 2020. It requires government entities to recognize a right-to-use subscription asset and corresponding subscription liability for such contracts with a specified term. Prior to GASB 96, there was no specific accounting guidance for SBITA. To the extent relevant, the standards for SBITAs are based on the standards established in Statement No. 87, Leases, as amended. The new standard is effective for organization with fiscal year after June 15, 2022.

The GASB 96 provides guidance around the following areas:

It defines a SBITA
Establishes that a SBITA results in a right-to-use subscription asset (an intangible asset) and a corresponding subscription liability
Provides the capitalization criteria for outlays other than subscription payments, including implementation costs of a SBITA
Disclosure required for SBITA

Key concepts covered under GASB 96

A SBITA is defined as contract that conveys control of the right of use of IT software (belonging to SBITA vendors ) for a term and consideration as specified in the contract.

The subscription term is the period during which the government has a non-cancellable right to use the underlying asset. The term also includes option to extend the contract (if it is reasonably certain that the option will be exercised) or option to terminate the contract (if it is reasonably certain that the option will not be exercised).

Subscription liability is initially measured as 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. A government should recognize amortization of the discount on the subscription liability as an outflow of resources (for example, interest expense) in subsequent financial reporting periods.

The subscription asset would be recognized and initially measured as the sum of the initial subscription liability amount, payments made to the SBITA vendor before commencement of the subscription term, and capitalizable implementation costs, less any incentives received from the SBITA vendor at or before the commencement of the subscription term. A government should recognize amortization of the subscription asset as an outflow of resources over the subscription term.

GASB provides an exception for short term SBITA’s, which are 12 months or less, including any options to extend, regardless of their probability of being exercised. Subscription payments for short-term SBITAs would be recognized as outflows of resources over the period of the subscription.

Setup, payments, modifications, and terminations of SBITAs are essentially identical to leases. Modifications that result in a reduction of the right to use IT assets (specifically including either a reduction in the assets or a shortening of the term) are treated as partial terminations, in which the asset and liability are reduced and a gain or loss recognized for the difference between the two. This is the same as for GASB 87.

Disclosure Requirements

A government should disclose the following in notes to financial statements about it’s SBITA’s

A general description of its SBITAs, including the basis, terms, and conditions on which variable payments not included in the measurement of the subscription liability are determined
The total amount of subscription assets, and the related accumulated amortization, disclosed separately from other capital assets
The amount of outflows of resources recognized in the reporting period for
- Variable payments not previously included in the measurement of the subscription liability
- Other payments, such as termination penalties, not previously included in the measurement of the subscription liability
Principal and interest requirements to maturity, presented separately, for the subscription liability for each of the five subsequent fiscal years and in five-year increments thereafter
Commitments under SBITAs before the commencement of the subscription term
The components of any loss associated with an impairment

Adopting option/ methodology to be followed

Implementation is required for fiscal years starting after June 15, 2022, and permitted earlier. The changes should be applied retroactively by restating financial statements, if practicable, for all prior fiscal years presented. If restatement is not practicable, the cumulative effect, if any, should be reported as a restatement of beginning net position for the earliest fiscal year restated. Assets and liabilities should be recognized and measured using the facts and circumstances at the beginning of the fiscal year in which the standard is implemented.

EZLease GASB 96 Implementation

Configuring GASB 96

To switch to managing SBITAs, first open EZLease in the Lessee workspace and set the accounting methodology to “GASB.” Once this is done, a new “Manages SBITAs” button will appear in the File menu.

GASB 96 is a new workspace within EZLease Lessee. This means that customers can have separate user-defined fields, account number groups, user permissions, etc. for SBITAs vs leases – giving them complete flexibility to separately configure their SBITA and lease workspaces to meet their needs.
- Note that lease count is currently separate among lessee, lessor, and SBITA. This means that a client with a lease license of 100 could technically have a total of 300 records. This will be corrected in a future release.
When in the GASB 96 workspace, you’ll notice irrelevant reports and other options have been removed. For example, the “salvage value” field is hidden, and the “rent steps” table has been renamed to “payment schedule.” Pay close attention to the account number groups as those are also different.
Customers may choose to enable “low value” SBITAs and set a materiality threshold in System Options.
The user need to determine the application date for GASB 96. Depending on the user’s adoption policy for GASB 96, the user can select any one adoption methodology:
- Apply the changes retroactively by restating financial statements. In such case the application date will be before the adoption date of the standard.
- Apply the changes cumulatively at the implementation date.

Upload Template

The existing lease upload template will work for SBITAs, but users may find it confusing as there are irrelevant fields. The new SBITA upload template can be found here: Bulk Import Templates

Review Databases

Just like in lessee, a review database can be created and imported, including account number groups and system options. If a user entered their SBITAs as leases, they could move them to the SBITA workspace by creating a lessee review database and import that database into the SBITA workspace.

Entering SBITAs

Entering SBITAs is largely the same as entering leases. The user will need to enter inputs like Begin date, End date, Payment schedule, Incremental borrowing rate based on the terms of the SBITA. If the user has received incentives from the lessor that needs to be entered under “Incentives”.

GASB 96 has provided guidance on cost associated with the SBITA (other than subscription payment) eligible to be capitalized. Such cost needs to be grouped in the following category

Preliminary project stage - Expensed as incurred. Customer may choose to enter this in the variable tab if they wish to track this expense in EZLease.
Initial implementation stage - Capitalized. Entered in the “implementation costs” field in Inception tab in EZLease. (This will be capitalized over the lease term.)
Operational stage (and additional implementation) - Customer may choose to enter this in the variable tab if they wish to track this expense in EZLease.
Non-subscription components of the contract, such as maintenance, support, and training, are expensed as incurred. Customer may choose to enter these in the variable tab if they wish to track this expense in EZLease.

Note: When entering an SBITA with a start date that's before your GASB 96 application date, EZLease will automatically exclude any activity prior to your application date.

Unlocking and Modifying SBITAs

EZLease also provides accounting for SBITAs with subsequent measurements and modifications.

The user needs to press “Unlock SBITA” and update fields required by GASB 96 and the updated terms of the contract.

If there is a decrease in the scope of the underlying asset, the user needs to update the % of asset remaining under “Underlying asset scope” in the Inception tab. Once all the key inputs are entered the user needs to select “Save” and then choose “Revise”. EZLease will re-perform calculations based on the update fields based on the booking date. The user can run all the reports based on the updated information.

In case the user did not enter the data accurately while setting up the lease, the user has the option to update all the data after unlocking the lease and selecting “Replace”.