GASB 96 SBITAs: Identifying and Measuring Subscription IT Arrangements

Statement No. 96 applies the right-to-use model to subscription-based information technology arrangements. A SBITA is a contract conveying control of the right to use another party's IT software — alone or in combination with tangible capital assets — for a period of time in an exchange or exchange-like transaction. Where one exists, the entity recognises a subscription liability and a right-to-use subscription asset, amortised over the subscription term.

The scoping question

Control is the operative concept, and it has two elements: the right to obtain the present service capacity from use of the underlying asset, and the right to determine the nature and manner of its use. Both must be present.

In practice the distinction that does most of the work is between a subscription to software the entity directs, and a service the vendor performs using its own software. An entity licensing a permitting platform, configuring it, loading its own data and controlling access has a SBITA. An entity engaging a firm to process its payroll, where the firm operates its own systems and delivers an output, does not — that is a service contract, whatever technology sits behind it.

Finding the population

Software contracts are more dispersed than leases. A general ledger query is a starting point and will miss arrangements bought on purchase cards, arrangements coded to departmental supplies, and arrangements procured by a department that never involved finance. Three sources fill the gap:

• The purchase card transaction detail, filtered by merchant category and by known software vendors.
• The identity provider or single sign-on directory, which lists every application anyone actually logs into.
• The IT department's application inventory, where one exists — and where it does not, building one is worth doing for security reasons independent of the accounting.

The second of these routinely surfaces applications finance has never heard of. That discovery is usually more valuable than the accounting entry that follows.

Measurement

The subscription liability is the present value of payments expected over the subscription term, discounted at the rate the vendor charges if determinable, otherwise the entity's incremental borrowing rate. The asset comprises the liability, payments made to the vendor before commencement, and capitalisable implementation costs.

Implementation cost classification is where errors cluster. The standard distinguishes three stages. Preliminary project stage activities — evaluating alternatives, determining needs, selecting a vendor — are expensed. Initial implementation stage activities, including configuration, installation, coding and testing, are capitalised as part of the subscription asset. Operation and additional implementation stage activities, including maintenance and troubleshooting, are expensed. Data conversion is capitalised only to the extent it is necessary to place the asset into service; ongoing data cleansing is not.

Training is expensed in all stages. This is a frequent correction in first-year audits, because implementation invoices commonly bundle training with configuration.

Disclosure and ongoing operation

Required disclosures parallel GASB 87: a description of the arrangements, the amount of subscription assets by class with accumulated amortisation, other payments not included in the liability, principal and interest requirements to maturity, and commitments before commencement. Entities that build the disclosure from a maintained register produce it in an afternoon; entities that reconstruct it annually spend a week.

The practical recommendation

Maintain one register covering both leases and SBITAs, with a field distinguishing them. The data elements are nearly identical, the judgement points overlap, and the contracts that are hardest to classify are precisely those that could fall under either standard. Two separate registers guarantee that bundled contracts appear in neither.