In today’s rapidly evolving digital environment, many organizations have implemented new regulations to ensure equity, fairness, and transparency within their industries. Thus, after creating the new lease accounting standards, GASB 96 was created as well. This statement from the Governmental Accounting Standards Board (GASB) became effective for all state and federal government entities for fiscal years beginning after June 15, 2022, and introduced a new type of arrangement called a SBITA for government entities that choose to integrate subscription-based IT assets. Because of this arrangement, three SBITA stages have been defined by the GASB to help government entities report their costs for setting up, operating, and maintaining IT assets: the preliminary project stage, the initial implementation stage, and the operation and additional implementation stage. However, to understand the three stages of SBITA, we must first define what a SBITA is and which arrangements qualify as SBITAs.

What Is a SBITA?

A SBITA stands for a Subscription-Based IT Arrangement. SBITAs act as contracts between an IT vendor and a government entity, granting the government entity the right to use the IT vendor’s subscription asset for a minimum of 12 months in an exchange or exchange-like transaction.

What Qualifies as a SBITA?

To qualify as a SBITA, there are a few criteria that must be met. The first is that a government entity must have the right to use a subscription asset at its present service capacity and in any nature or manner they desire. Second, there must be a noncancellable right to the subscription asset, meaning the arrangement cannot be terminated before the contract expires without the permission of the other party. Finally, there must be an exchange or exchange-like transaction between an IT vendor and a government entity. This means that the two parties exchange goods, services, or funds of approximate or equal value.

Beyond that, an arrangement does not qualify as a SBITA if: 

• The vendor only provides a government entity IT support rather than the right to use a subscription asset
• A government entity provides other government entities with their own subscription assets and other tangible assets via a subscription model
• They meet the terms of a lease under GASB 87
• They meet the criteria under GASB 94
• They use perpetual contracts

Now that you’ve identified which of your arrangements qualify as a SBITA, let’s dive deeper into the three SBITA stages used for implementation.

What Are the Three SBITA Stages?

There are three SBITA stages in total: the preliminary project stage, the initial implementation stage, and the operation and additional implementation stage.

Preliminary Project Stage

The preliminary project stage is the first stage in the SBITA stages. This stage is the planning phase. During this stage, governments or government entities identify their potential needs and research various subscription assets and technology that could solve these needs. Throughout the process, they should weigh alternatives and decide which subscription assets to move forward with, and this stage should end by obtaining the technology provided by a SBITA. Any costs incurred during this stage will be expensed as incurred. 

Initial Implementation Stage

The next phase of the SBITA stages is the initial implementation stage. In this stage, the subscription asset selected in the preliminary project stage is put to use. This includes customizing the subscription asset to fit specific needs, testing its functionality, migrating data from the old system, and installing it completely. This stage is complete when the subscription asset is placed into service. Unlike the preliminary project stage, the costs associated with this stage are capitalized as part of the subscription asset rather than expensed as incurred.

Operation and Additional Implementation Stage

The final of the SBITA stages is the operation and additional implementation stage. This phase includes regular upkeep and problem-solving measures that ensure a government entity’s uninterrupted access to a subscription asset. In this stage, expenses are either incurred or capitalized depending on the situation. If there are costs associated with an increase in functionality or an increase in efficiency of the subscription asset, those costs should be capitalized as an addition to the existing subscription asset.

Implementing the Three SBITA Stages Under GASB 96

With all of the different SBITA stages, implementing GASB 96 to stay compliant with the new SBITA accounting standards can be daunting; but it doesn’t have to be. With LeaseCrunch’s easy-to-use automated lease accounting software, you can easily maneuver through the three SBITA stages, saving you time and money while accurately keeping track of your incurred and capitalized costs. To learn more about how LeaseCrunch‘s simple, scaleable, cloud-based solution can help you comply with all of these new standards including GASB 96, ASC 842, and IFRS 16, contact us or schedule a demo with a member of our team.

Frequently Asked Questions

Why Did GASB Issue Statement No. 96 on SBITAs?

GASB Statement No. 96 was published to standardize accounting procedures and financial reporting pertaining to SBITAs. It seeks to elevate the clarity, dependability, applicability, and uniformity of information about SBITAs while improving comparability in the financial statements of governmental entities.

What Are the Key Provisions of Statement No. 96?

The key provisions of GASB Statement No. 96 mandate government entities to provide details about their Subscription Based IT Arrangements (SBITAs). This includes the subscription assets value, the total amortization accrued, variable payments not factored into subscription liability calculation, and other information essential to the disclosure of SBITAs.

What Are Some Examples of SBITA Arrangements?

Examples of SBITA arrangements include government entities that use Software as a Service (Saas), Platforms as a Service (Paas), and Infrastructure as a Service (IaaS). These can include software services such as Dropbox and LeaseCrunch, platform services such as Google Cloud, or infrastructure services such as Amazon Web Services (AWS).

Does Statement No. 96 Apply to All Governments?

Yes, GASB 96 applies to financial reports for all state and local governmental entities. This includes general governments, entities that serve the public, public workforce pension systems, public utility providers, healthcare and medical providers, and institutions of higher education.

When Does Statement No. 96 Take Effect?

GASB Statement No. 96 took effect for fiscal years after June 15, 2022.