Your Local Government’s IT Budget Is Growing. Your Accounting Standards Haven’t Caught Up. Until Now.
Over the past decade, local governments have steadily shifted technology spending from capital purchases — servers, software licenses, on-premise systems — to subscription-based arrangements. Cloud-hosted financial management platforms. SaaS permitting systems. Subscription-based GIS tools. Monthly contracts for cybersecurity monitoring. The shift has been gradual, practical, and almost universally beneficial from an operational standpoint.
But for government finance officers, it created an accounting problem: how do you recognize these arrangements in your financial statements?
Before 2022, there was no clear answer. Some governments expensed all subscription costs as incurred. Others tried to capitalize them under existing guidance that wasn’t designed for SaaS arrangements. Auditors interpreted the standards differently. Financial statements were inconsistent across jurisdictions, and comparability — one of the core purposes of accounting standards — suffered.
GASB 96 fixes that. But implementing it correctly requires finance officers to understand what the standard actually says, how it differs from existing lease guidance, and what your systems need to do to comply.
What Is GASB 96?
Governmental Accounting Standards Board Statement No. 96, Subscription-Based Information Technology Arrangements, establishes the accounting and financial reporting requirements for subscription-based information technology arrangements (SBITAs) entered into by government end users.
The standard was effective for fiscal years beginning after June 15, 2022, meaning most local governments with a July 1 fiscal year start implemented GASB 96 for fiscal year 2023.
At its core, GASB 96 requires governments to recognize a right-to-use subscription asset and a corresponding subscription liability for qualifying SBITAs — similar in concept to how GASB 87 requires right-of-use assets and lease liabilities for lease arrangements.
If you’ve already implemented GASB 87, the conceptual framework will be familiar. But the details differ, and there are some important distinctions to understand.
What Qualifies as an SBITA Under GASB 96?
Not every technology subscription is subject to GASB 96. The standard defines an SBITA as 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.
In plain English: if your government pays for the right to use software that runs on a vendor’s infrastructure (as opposed to software you own and host yourself), and the contract has a defined term, GASB 96 likely applies. This includes:
- Cloud-hosted ERP and financial management systems
- SaaS permitting and licensing platforms
- Subscription-based geographic information systems (GIS)
- Cloud-hosted public safety and dispatch systems
- Subscription HR and payroll platforms
- Online document management and records retention services
Short-term contracts with a maximum possible term of 12 months or less are exempt from recognition requirements (similar to the short-term lease exemption under GASB 87). Low-value arrangements may also qualify for a practical expedient, though GASB 96 does not specify a dollar threshold — governments must establish their own materiality thresholds.
How to Calculate the Right-to-Use Asset and Subscription Liability
The mechanics of GASB 96 recognition follow a straightforward pattern, but each step requires careful attention to contract terms and actuarial assumptions.
Step 1: Identify the SBITA Term
The SBITA term includes the noncancelable period of the contract, plus any optional renewal periods the government is reasonably certain to exercise, and any periods covered by options to terminate that the government is reasonably certain not to exercise.
“Reasonably certain” is a high bar — similar to GASB 87 — and means that there is significant economic incentive to exercise (or not exercise) the option. For many recurring technology subscriptions where switching costs are high or the system is deeply integrated into government operations, the government may be reasonably certain to renew even if the contract is technically cancelable.
Step 2: Calculate the Subscription Liability
The subscription liability equals the present value of subscription payments expected to be made during the SBITA term, discounted at the government’s incremental borrowing rate (or, if available, the rate implicit in the contract).
For annual subscriptions with fixed payments, this calculation is relatively straightforward. For contracts with variable payment components, fixed-fee escalations, or multi-year pricing schedules, you’ll need to model each year of payments separately and discount them to present value.
Step 3: Calculate the Right-to-Use Subscription Asset
The right-to-use subscription asset is initially measured at the subscription liability amount, adjusted for:
- Payments made to the vendor at or before the commencement of the SBITA term
- Incentives received from the vendor at or before the commencement date (subtracted)
- Initial direct costs paid by the government
After initial recognition, the right-to-use asset is amortized on a straight-line basis over the SBITA term (unless another systematic basis better reflects the pattern of consumption). The subscription liability is reduced as payments are made and accretes interest at the discount rate.
Implementation Costs: What Gets Capitalized?
One of the most practically significant aspects of GASB 96 is its treatment of implementation costs for subscription-based software. Unlike operational expenses, certain implementation costs must be capitalized as part of the right-to-use subscription asset.
GASB 96 identifies three stages of implementation:
Preliminary project stage: Costs incurred for activities like evaluating alternatives, selecting vendors, and general project planning. These costs are expensed as incurred.
Initial implementation stage: Costs incurred after a contract is executed and before the system is ready for use. Certain costs in this stage — including software configuration, coding, data migration, and testing — must be capitalized. Training costs and internal administrative costs are expensed.
Operation and additional implementation stage: Costs incurred once the system is operational. These are generally expensed, except for costs associated with additional implementation activities that extend the functionality or useful life of the system.
Correctly categorizing implementation costs requires communication between your finance team, IT department, and any implementation vendor. The documentation you’ll need for audit purposes should be captured during implementation — not reconstructed afterward.
How GASB 96 Differs from GASB 87 (Leases)
Finance officers who successfully navigated GASB 87 implementation will find GASB 96 conceptually similar, but there are important differences:
No lessee/lessor distinction. GASB 96 only covers the government as the end user (similar to a lessee), not the vendor side of the arrangement.
Implementation costs. GASB 96 includes detailed guidance on capitalizing implementation costs — guidance that doesn’t exist under GASB 87.
No residual value guarantees. Software subscriptions don’t have residual values in the same way leased equipment does, so GASB 96 doesn’t address this concept.
Modification accounting. GASB 96 provides specific guidance on accounting for SBITA modifications, including when to treat a modification as a new arrangement versus an extension of the existing one.
What Your Finance Team Needs to Do Now
If you’re still working through GASB 96 implementation — or if you implemented it but aren’t confident in your completeness — here’s a practical checklist:
Inventory all technology subscriptions. Work with your IT department to compile a complete list of all subscription-based technology arrangements, including cloud-hosted software, managed services, and SaaS platforms. Include contract start dates, renewal options, annual payment amounts, and cancellation provisions.
Apply the short-term and low-value exemptions consistently. Establish a written policy for which arrangements you’ll treat as short-term or low-value, and document the rationale.
Calculate and record right-to-use assets and subscription liabilities. For arrangements that don’t qualify for exemptions, run the present value calculations and record the initial recognition entries at the commencement date (or at transition if you haven’t already).
Set up amortization schedules. The right-to-use asset amortization and subscription liability accretion schedules need to be maintained and updated each year as payments are made and contracts are modified or renewed.
Document implementation costs. Review past and current software implementations to identify any capitalized implementation costs that should be included in the right-to-use subscription asset.
The Vision: Government Financial Statements That Reflect Reality
GASB 96 isn’t bureaucratic complexity for its own sake. It exists because subscription-based IT arrangements represent real, multi-year obligations that affect a government’s financial position — and that financial statement readers (citizens, oversight boards, bond rating agencies) deserve to see clearly.
When implemented correctly, GASB 96 improves the transparency and accuracy of government financial statements. It shows future payment obligations that previously lived off-balance-sheet. It creates a more complete picture of the assets and liabilities the government has committed to. And it gives finance officers better information for managing their IT budgets and making renewal decisions.
That’s the purpose of accounting standards. Not compliance for compliance’s sake — but financial clarity that serves the public interest.
How Account Cloud Unity Helps
Account Cloud Unity is a cloud-based fund accounting platform built specifically for nonprofits and local governments. With GASB-compliant fund accounting, right-to-use asset tracking, and the reporting flexibility government finance officers need, Unity makes GASB 96 compliance manageable — not a quarterly ordeal.
Unity’s integrated financial management tools help you maintain complete SBITA schedules, calculate amortization and interest accretion automatically, and generate the disclosures your auditors need — all in a single platform designed for government accounting, not adapted from commercial software.
Ready to simplify GASB 96 compliance? Schedule a demo of Account Cloud Unity today.