GASB 96 and SBITA: Everything You Need to Know in 2025

What is GASB 96?

In May of 2020, the Governmental Accounting Standards Board, or GASB, finalized how SBITAs are recorded on financial statements through the issuance of GASB Statement No. 96.

GASB 96 requires all covered organizations or governmental entities to record a right-to-use subscription intangible asset and corresponding subscription liability. The standard also provides guidance in accounting for cash outlays such as implementation fees, related to SBITAs to prevent future disparities in how government entities report on non-subscription costs. GASB 96 is effective for fiscal years beginning after June 15, 2022, giving entities a clear timeline for compliance.

Recent GASB 96 Updates

Since its original release, GASB 96 has been clarified through the GASB Implementation Guide No. 2023-1. The implementation guide was released in June 2023 and offers important updates for accurate application:

• Auto-renewing licenses are not perpetual and are treated as having termination options at each renewal, qualifying them as SBITAs under GASB 96.
• Contracts involving both software and tangible assets fall under GASB 96 if the software component is significant in substance.
• The subscription term begins only after the initial implementation stage, when the government gains control of the IT asset.
• Modifications that reduce usage rights must be treated as partial or full terminations, requiring asset/liability adjustments and recognition of any gain or loss.
• Remeasurement of the subscription liability is required if there are significant changes to payment terms, duration, or discount rates.

These updates help ensure consistency in implementation and financial reporting. Organizations should review them carefully to maintain compliance with the latest GASB 96 guidance.

Who does GASB 96 apply to?

GASB 96 applies to all public sector entities that follow Generally Accepted Accounting Principles (GAAP) in filing their annual financial statements, including state and local governments, school districts and public higher ed institutions.

What is a Subscription-Based Information Technology Arrangement (SBITA) under GASB 96?

Issued by the Governmental Accounting Standards Board, GASB 96 defines Subscription-Based Information Technology Arrangements (SBITAs) and provides guidance on accounting and financial reporting for government entities. The statement was created to regulate the accounting and disclosure around subscription-based payments for cloud-based software agreements.

Under GASB 96, a SBITA is a contract that conveys control of the right to use another party’s (a SBITA vendor’s) 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.

For GASB 96 to be directly applicable, the organization must first determine that the contract is a SBITA. A crucial component in defining the subscription terms is the element of control over the underlying IT assets. An assessment must be made, and specific stipulations are required in understanding what rights your organization has regarding the present service capacity. Once this distinction is made, excluding certain exemptions, the subscription term is the noncancellable period of time that the government has the right to use the underlying IT asset.

What is an Example of a SBITA?

An example of a SBITA is a subscription-based software service, such as Software as a Service (SaaS) platforms. Some specific examples include Salesforce, Microsoft Teams, and Dropbox. These arrangements involve a contract between a government entity and another party, granting the right to use IT software for a period of time in exchange for a fee.

What are short-term SBITAs?

GASB 96 provides exemptions for short-term SBITAs. Under GASB 96, a short-term SBITA has a maximum possible term of 12 months at the commencement of the subscription term. This includes any renewal or extension options regardless of whether the government is reasonably certain to exercise these options. The governmental entity is not required to recognize a subscription asset and liability for any short-term SBITA.

What contracts are exempt under GASB 96?

GASB 96 excludes contracts that only provide IT support services, but includes contracts providing IT support services in conjunction with the right to use a related IT asset. The following are also exempt from the scope of GASB 96:

• Standalone IT services contracts that do not include the right to use an underlying IT asset
• Agreements providing outside entities the right to use their own IT software and associated assets through an SBITA
• Contracts that meet the definition of a lease under GASB 87, Leases
• Contracts that fall under the scope of GASB 94, Public-Private and Public-Public Partnerships and availability Payment Arrangements
• Contracts that fall under the scope of GASB 51, Accounting and Financial Reporting for Intangible Assets
• Short-term SBITA contracts

How do you recognize and measure an SBITA?

If an SBITA is identified, government entities recognize a subscription liability and a subscription asset at the beginning of the subscription term of the SBITA, which occurs when the government entity obtains control of the right to use the underlying IT asset.

The subscription term is the period that the government has the noncancellable right to use the underlying IT assets, plus the following periods, if applicable:

• Periods covered by a government’s extension option if it is reasonably certain that the government will exercise that option
• Periods covered by a government’s termination option if it is reasonably certain that the government will not exercise that option
• Periods covered by a vendor’s extension option if it is reasonably certain that the SBITA vendor will exercise that option
• Periods covered by a vendor’s termination option if it is reasonably certain that the vendor will not exercise that option

What Are the Footnote Disclosure Requirements for a SBITA?

• Description of the SBITA: This should include the basis, terms, and conditions on which variable payments are not included in the measurement of the subscription liability.
• Sum of subscription-based assets and related accumulated amortization: This should be disclosed separately from other capital assets.
• Outflow of resources recognized in the reporting period: This should include variable payments not previously included in the measurement of the subscription liability, as well as other payments such as termination penalties.
• Principal and interest requirements to maturity: This should be presented separately for the subscription liability for each of the five subsequent fiscal years and in five-year increments thereafter.
• Details of SBITAs that have been committed but not yet commenced: This should include the basis, terms, and conditions of the arrangement, as well as the estimated amount of the subscription liability.
• Components of any loss associated with an impairment: This should include the amount of the loss, as well as the factors that contributed to the impairment.
• Balance restatement details for the fiscal year 2023 only: This should include the reason for the restatement, as well as the impact on the financial statements.

What are the stages of SBITA?

The amortization of the subscription asset should be recognized as an outflow of resources over the term of the subscription. GASB 96 categorizes both the activities and related cash outlays associated with a SBITA into distinct stages, each of which dictates how costs are treated for accounting purposes. These stages help organizations determine whether specific expenditures should be expensed or capitalized depending on their timing and nature. The three primary stages are:

Preliminary project stage

This stage includes activities associated with an entity’s decision to obtain the technology provided by the SBITA. Typical activities include evaluating alternatives, determining needed technology, and selecting a vendor. In accordance with GASB 96, all outlays in this stage are considered primary and must be expensed as incurred.

Initial implementation stage

This stage includes activities related to designing, configuring, coding, testing, and installing the subscription assets. The initial implementation stage includes all ancillary charges necessary to place the subscription asset into service. Outlays in this stage generally should be capitalized as an addition to the subscription asset.

Operation and additional implementation stage

This stage includes activities that relate to ongoing access and operations, such as maintenance, troubleshooting, and subsequent implementation work. Outlays in this stage should be expensed as incurred unless they meet specific capitalization criteria under GASB 96. For example, when they significantly enhance the functionality of a subscribed asset.

What is a subscription asset?

In addition to the subscription liability, the government must recognize a subscription under GASB 96. The subscription asset is measured as the initial value of the subscription liability plus:

• Payments made to the vendor at the commencement of the subscription term
• Capitalizable initial implementation costs
• Minus any vendor incentives received at the commencement of the subscription term

The government entity will need to amortize the subscription asset systematically and rationally over the shorter of the subscription term or the useful life of the underlying IT asset. Amortization of the subscription asset begins at the commencement of the subscription term and is reported as an outflow of resources by the governmental entity.

What is a subscription liability?

The initial subscription liability is measured as the present value of the total subscription payments expected to be made to the vendor during the subscription term. The total future payments are discounted using the interest rate the vendor charges the government, which may be the interest rate implicit in the SBITA. If the implicit interest rate is not readily determinable, the government may use an estimated incremental borrowing rate for the present value calculation.

GASB 96 outlines that the payments included in the present value calculation of the subscription liability should include the following:

• Fixed payments
• Variable payments based on an index or a rate, measured using the index or rate as of the commencement of the subscription term
• Variable payments that are fixed in substance
• Termination penalties, if the subscription term reflects the government exercising either an option to terminate the agreement or a fiscal funding or cancellation clause
• Incentives receivable from the vendor
• Other payments the government is reasonably certain will be required to be made to the vendor

In subsequent periods, the government will accrue interest on the remaining subscription liability at the applicable discount rate. The subscription payments will be allocated first to the accrued interest, and then to reduce the outstanding subscription liability.

What are the disclosure requirements under GASB 96?

A government entity should disclose the following information about its SBITAs (which may be grouped for purposes of disclosure) in notes to financial statements:

1. 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
2. The total amount of subscription assets, and the related accumulated amortization, disclosed separately from other capital assets
3. The amount of outflows of resources recognized in the reporting period for variable payments not previously included in the measurement of the subscription liability
4. The amount of outflows of resources recognized in the reporting period for other payments, such as termination penalties, not previously included in the measurement of the subscription liability
5. 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
6. Commitments under SBITAs before the commencement of the subscription term
7. The components of any loss associated with an impairment

Footnote Disclosure Requirements for a SBITA

• Description of the SBITA: This should include the basis, terms, and conditions on which variable payments are not included in the measurement of the subscription liability.
• Sum of subscription-based assets and related accumulated amortization: This should be disclosed separately from other capital assets.
• Outflow of resources recognized in the reporting period: This should include variable payments not previously included in the measurement of the subscription liability, as well as other payments such as termination penalties.
• Principal and interest requirements to maturity: This should be presented separately for the subscription liability for each of the five subsequent fiscal years and in five-year increments thereafter.
• Details of SBITAs that have been committed but not yet commenced: This should include the basis, terms, and conditions of the arrangement, as well as the estimated amount of the subscription liability.
• Components of any loss associated with an impairment: This should include the amount of the loss, as well as the factors that contributed to the impairment.

Balance restatement details for the fiscal year 2023 only: This should include the reason for the restatement, as well as the impact on the financial statements.

Common GASB 96 Compliance Mistakes

Implementing GASB 96 is a significant shift for government entities, especially when it comes to identifying and accounting for SBITAs. Below are some of the most common pitfalls organizations encounter:

• Misclassifying contracts that qualify as SBITAs: Many organizations overlook contracts that meet the definition of a subscription-based IT arrangement, especially when software is bundled with services. VL’s contract tracking and classification tools help you identify qualifying agreements with confidence.
• Overlooking short-term SBITA exceptions: Failing to properly apply the 12-month exemption rule can lead to over-reporting. Visual Lease enables you to flag short-term SBITAs and apply the correct accounting treatment automatically.
• Incomplete or inconsistent data collection: GASB 96 requires detailed information on subscription terms, costs, and amortization schedules. VL’s lease management software centralizes data input and automates calculations, reducing manual errors and ensuring consistency.
• Incorrect measurement of subscription assets and liabilities: Errors often occur when calculating present value, especially with variable payment terms or discount rates. Visual Lease includes built-in valuation models to standardize and simplify these measurements.
• Missing or insufficient footnote disclosures: Many entities fall short of fully meeting GASB 96’s disclosure requirements in their financial statements. VL’s reporting tools generate audit-ready disclosures that cover all required data points.
• Delayed or disorganized implementation: Without a clear plan, entities may miss the compliance deadline or face increased audit risk. Visual Lease supports structured rollout planning, with implementation support tailored to GASB 96 timelines.

Ready to Get GASB 96 Compliant?

Meeting the compliance standards for GASB 96 requires consistency, accuracy and the collection of your portfolio data — specifically information surrounding SBITAs. At the same time, evaluating accounting software solutions will allow you to implement a solution that will allow you to meet the standards outlined in GASB 96. Visual Lease provides a lease accounting software that simplifies the complexities of GASB 96 compliance. Whether you’re in the early stages of implementation or looking to optimize your existing process, Visual Lease can support your journey to full GASB 96 compliance with confidence.

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