GASB 96 SBITA: Measurement, Disclosures, and Adoption

GASB Statement No. 96 requires state and local governments to put subscription-based information technology arrangements on the Statement of Net Position as an intangible right-to-use asset paired with a subscription liability, and to disclose the terms and future payments in the notes. The standard applied to fiscal years beginning after June 15, 2022, replacing the mix of approaches that had let long-term cloud software commitments sit inside operating expenses.¹ Applying it correctly means working through a chain of judgments about contract scope, term, payments, discount rate, implementation costs, and disclosure.

What Counts as a SBITA

A SBITA is a contract that gives a government the right to use another party’s IT software, alone or combined with tangible capital assets such as vendor-provided servers, for a period of time in an exchange or exchange-like transaction.¹ The government must have both the right to obtain the service capacity from the software and the right to determine how it is used during the contract term.

Software-as-a-Service, Platform-as-a-Service, and Infrastructure-as-a-Service contracts all involve IT software used with tangible capital assets, regardless of the vendor’s label, and each must be evaluated against the full definition.²

Several categories fall outside the standard:

Contracts that meet the definition of a lease follow GASB 87 instead.
Contracts where the software element is incidental to a tangible capital asset are excluded.
Perpetual licenses are purchases, not subscriptions. An auto-renewing license that continues until cancelled is not perpetual, because a termination option sits at each renewal date.²
Short-term SBITAs, meaning arrangements with a maximum possible term of 12 months or less including all extension options regardless of likelihood, skip recognition entirely. Payments are expensed as incurred.¹

A contract that transfers title to the IT assets to the government at the end of the term is a financed purchase, not a SBITA, and follows different accounting.

Setting the Subscription Term

The subscription term begins at commencement, defined as the point when the subscription asset is placed into service, not when the contract is signed or when payments begin.¹ A six-year contract with a two-year implementation carries a four-year subscription term.²p>

Start with the noncancellable period, then add extension options the government is reasonably certain to exercise and periods before a termination option the government is reasonably certain not to exercise. Reasonable certainty is a judgment informed by economics: a significant cancellation penalty, the cost of finding and installing a replacement, or heavy customization that would be lost all weigh against exercising a termination option.³

Fiscal funding or cancellation clauses that let the government walk away if funds are not appropriated are generally ignored when setting the term, unless it is reasonably certain the clause will be exercised.³ Most governments treat these clauses as formalities and measure the full expected contract length.

If the subscription term reflects an expected termination, any penalty tied to that termination is included in the liability. If the penalty is not in the liability and is later paid, it is disclosed separately in the notes.³

Measuring the Subscription Liability

The subscription liability equals the present value of payments expected during the subscription term.¹

Include:

Fixed payments stated in the contract
Variable payments tied to an index or rate such as the Consumer Price Index, measured using the index value at commencement
Termination penalties when the term reflects an expected termination
Fixed-in-substance components of otherwise variable payments

Exclude variable payments based on usage, such as charges tied to transaction volume, data storage consumed, or user seats above a base threshold. Those are expensed in the period the obligation is incurred.³ Any subscription incentives received from the vendor, such as credits or rebates, reduce the liability.

Discount payments using the interest rate the vendor charges the government, which may be implicit in the pricing. If that rate is not readily determinable, use the government’s incremental borrowing rate.¹ In most subscription contracts the vendor rate is neither stated nor easily derived, so the incremental borrowing rate is the practical default: estimate what the government would pay to borrow an equivalent amount over a similar term for a similar purpose, using the most current data available at commencement.

Measuring the Subscription Asset

The right-to-use subscription asset starts with the initial liability, plus payments made to the vendor at or before commencement (net of incentives received), plus eligible implementation costs.¹ The eligibility rules split the project into three stages.

Preliminary Project Stage

Evaluating vendors, determining needed technology, and conceptual planning all sit here. Every dollar is expensed as incurred. Costs cannot be capitalized retroactively once the project moves forward.

Initial Implementation Stage

Work to place the asset into service — configuration, coding, testing, and installation — is generally capitalized into the subscription asset.³ Data conversion qualifies only to the extent it is necessary to get the software ready for use; anything beyond that is expensed.

Before capitalizing anything in this stage, the government must be able to document the specific objective of the project and expected service capacity, technical feasibility, a current intention and effort to finalize the contract, and formal management authorization with committed funding.³

Operation and Additional Implementation Stage

After the software goes live, maintenance, troubleshooting, and support are expensed as incurred. A later implementation activity that significantly increases the software’s functionality or efficiency can be capitalized.

Training

Training is always expensed, regardless of stage.³ Auditors will flag training costs that end up capitalized in the asset balance.

Splitting Bundled Contracts

Contracts that bundle a subscription with a separate perpetual license, ongoing maintenance services, or multiple underlying IT assets with different subscription terms must be split into subscription and nonsubscription components and accounted for separately.³

Start with any individual component prices in the contract, provided they look reasonable against observable stand-alone prices. Bundling discounts are acceptable if applied proportionally. If prices are not broken out, or the stated prices look unreasonable, use a best estimate based on available market data. When even a best estimate is not practicable, treat the entire contract as a single SBITA.³

Ongoing Accounting

At commencement, the subscription liability and the right-to-use subscription asset go on the Statement of Net Position as separate line items.¹ In each subsequent period, the asset is amortized over the subscription term as an outflow of resources. On the liability side, interest expense accrues through amortization of the discount, and payments are allocated first to accrued interest and then to principal.³

Modifications

A contract amendment is treated as a separate SBITA only when it gives the government access to additional underlying IT assets not in the original contract and the price increase for those additional assets is reasonable based on observable data. Everything else triggers remeasurement of the existing liability with a matching adjustment to the asset.³

Remeasurement Without a Formal Amendment

Even without an amendment, the liability must be remeasured when one or more of these changes significantly affects its amount:

A change in the subscription term
A change in estimated payment amounts already included in the liability
A change in the vendor’s interest rate, if that rate was used as the initial discount rate
Resolution of a contingency that converts variable payments into fixed obligations

When remeasurement occurs, changes in an index or rate used for variable payments are folded in if they would significantly affect the liability. A change in an index or rate alone is not a trigger. A change in the government’s incremental borrowing rate alone is not a trigger either, but the discount rate is updated if the term changes significantly.³

The asset is adjusted by the same amount as the liability. If the adjustment would take the asset’s carrying value below zero, the remaining amount is a gain. Partial or full terminations follow the same logic: reduce both, and recognize the difference as a gain or loss.

Required Disclosures

The notes to the financial statements must include the following for all SBITAs other than short-term arrangements:³

A general description of the arrangements, including the basis, terms, and conditions, and how variable payments not in the liability are determined
The total amount of subscription assets and related accumulated amortization, reported separately from other capital assets
The amount recognized in the period for variable payments not included in the liability
Amounts for termination penalties or other payments not previously in the liability
A maturity schedule showing principal and interest requirements separately for each of the next five fiscal years, then in five-year increments
Obligations under SBITAs where the subscription term has not yet begun
Any impairment loss and any related change in the subscription liability

Governments may group SBITAs for disclosure purposes.

Materiality and Capitalization Policy

GASB 96 sets no minimum dollar amount for recognizing a SBITA and rejected a user-seat-count test on the grounds that more seats do not necessarily make an arrangement material.³ Materiality is left to professional judgment, and the standard notes that its provisions need not be applied to immaterial items.

Governments set their own policies. Some use the same dollar threshold applied to other capital assets; others use a SBITA-specific threshold. The policy should be documented and applied consistently so an auditor can verify that small-dollar subscriptions were excluded systematically rather than selectively.

Documentation Auditors Will Ask For

The stage-based cost framework carries a documentation load that is easy to underestimate. Records must separate preliminary project activities from initial implementation work and must show that the four capitalization prerequisites — defined objective, technical feasibility, intention to proceed, and management authorization with funding — were met before any costs were capitalized.³

GASB 96 does not prescribe a specific tracking tool, but costs must be classified by the nature of the activity. Time logs, project charters, and vendor invoices that identify what work was performed and when are the typical evidence. Data conversion is a frequent friction point in audits because capitalization turns on whether the conversion was necessary to place the asset into service or was part of ongoing operations.

Keep documentation of how each contract was evaluated against the SBITA definition, including the reasoning for any exclusion as short-term, a perpetual license, or a lease under GASB 87.

First-Time Adoption and Restatement

Governments adopting GASB 96 measured assets and liabilities using the facts and circumstances that existed at the beginning of the fiscal year of implementation.¹ Changes were applied retroactively by restating prior-year financial statements when practicable. When restatement was not practicable, the cumulative effect was reported as a restatement of beginning net position for the earliest year restated.³

Governments were permitted, but not required, to include capitalizable implementation costs incurred before adoption in the subscription asset measurement.¹ In the first year of application, the notes must disclose the nature and effect of the restatement, and if prior years were not restated, explain why.

1
Governmental Accounting Standards Board. Summary of Statement No. 96 – Subscription-Based Information Technology Arrangements
2
Governmental Accounting Standards Board. Implementation Guide No. 2023-1 – Implementation Guidance Update 2023
3
Governmental Accounting Standards Board. GASB Statement No. 96 – Subscription-Based Information Technology Arrangements