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Home Culture Technology

Account For Subscription Based IT Arrangments? You Need To Learn About GASB 96

by Vanessa
March 14, 2023
in Technology
0
Account For Subscription Based IT Arrangments? You Need To Learn About GASB 96

Governmental Accounting Standards Board (GASB) Statement No. 96, “Subscription-Based Information Technology Arrangements,” was issued on June 25, 2020. The guidance came into force after June 15th 2022, so current accounting has to be in line with GASB 96.

This standard establishes guidance for governmental entities for accounting and financial reporting of subscription-based information technology (IT) arrangements. In this article, we will discuss GASB 96 in detail and how it can help businesses.

GASB 96: Why Was It Introduced

Subscription-based IT arrangements have been on the rise over the last decade. These arrangements have become an essential part of the operations of governmental entities but also, privately entitled too. These arrangements include cloud computing services, software as a service (SaaS), platform as a service (PaaS), and infrastructure as a service (IaaS).

Before the issuance of GASB 96, there was no specific guidance available for governmental entities for the accounting and financial reporting of subscription-based IT arrangements. Due to this lack of guidance, governmental entities were using various accounting treatments for these arrangements. It resulted in inconsistencies in financial reporting and difficulty in comparison among different governmental entities.

GASB 96 Requirements

GASB 96 requires governmental entities to recognize a liability and an intangible asset related to subscription-based IT arrangements. The liability should be recognized when the subscription is entered into, and the intangible asset should be recognized when the entity obtains control of the right to use the IT arrangements.

The liability recognized should be measured at fair value and should be amortized over the subscription period. The amortization expense should be recognized as an outflow of resources.

The intangible asset recognized should be measured at cost or fair value, whichever is more readily determinable. The asset should be amortized over the period of expected benefit.

Impact of GASB 96 on Businesses

The issuance of GASB 96 has brought consistency and comparability in financial reporting of subscription-based IT arrangements among governmental entities. It has also provided guidance on how to account for these arrangements.

Before GASB 96, many governmental entities were not recognizing the liability related to these arrangements. As a result, their financial statements were not reflecting the true nature of their obligations. The recognition of liability has increased transparency and accuracy in financial reporting.

The requirement to recognize intangible assets related to subscription-based IT arrangements has also resulted in more accurate financial reporting. The assets were previously not recognized or recognized incorrectly, which resulted in understated assets and overstatement of expenses.

The requirement to recognize the liability and asset related to subscription-based IT arrangements has also resulted in better management of resources. Entities can now accurately track their obligations and resources related to these arrangements.

GASB 96: The Way Forward

GASB 96 has brought consistency and comparability in financial reporting of subscription-based IT arrangements among governmental entities. It has also provided guidance on how to account for these arrangements.

The requirement to recognize the liability and assets related to these arrangements has resulted in more accurate financial reporting and better management of resources. It has increased transparency and accuracy in financial reporting, which is beneficial for businesses.

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