GASB 96 Note Disclosure Example and Requirements

The Governmental Accounting Standards Board (GASB) Statement No. 96, known as GASB 96, has introduced new accounting guidelines for government entities. Designed to improve the transparency and comparability of governmental financial statements, GASB 96 expands upon previous accounting standards and aims to provide a more accurate reflection of the financial obligations that governments incur through Subscription-Based IT Arrangements (SBITAs). With these new standards come new disclosure requirements, which are critical for financial transparency.

What Is GASB 96?

GASB 96 is a statement by the GASB that became effective for all government entities with fiscal years beginning after June 15, 2022. It was created to account for SBITAs, which are arrangements between government entities and IT vendors for the use of IT-based subscription services.

What Is a SBITA?

SBITA stands for Subscription-Based IT Arrangements. These include IT services such as Software as a Service (SaaS), Platforms as a Service (PaaS), and Infrastructure as a Service (IaaS). Unlike GASB 87, which is for leases, GASB 96 is specifically for SBITAs. Entities can use the IT asset for various purposes.

What Is a Disclosure Requirement?

Disclosure requirements are specific, detailed pieces of information about transactions in financial statements. They generally encompass general information, significant terms and conditions, payments, and other crucial details. The importance of disclosure requirements stems from the substantial financial commitments that come with arrangements like SBITAs or leases. For GASB 96, these requirements are intended to provide critical insights into an entity's current and future obligations, promoting transparency and enabling informed decision-making for government entities.

What Do You Have to Disclose Under GASB 96?

SBITA Descriptions

A general description of a government entity’s SBITAs must be disclosed. This includes the basis, terms, and conditions on which variable payments not included in the measurement of the subscription liability are determined. Entities must also disclose the amount of outflows recognized in the period for variable subscription payments and other payments not previously included in the measurement of the subscription liability.

The Sum of Subscription-Based Assets

Entities must report subscription-based assets and related accumulated amortization, listed separately from other capital assets. The subscription-based asset refers to any asset obtained due to a SBITA, and the accumulated amortization represents the total amount of the asset's cost that has been expensed over its useful life. These are disclosed separately from capital assets.

Outflow of Resources

Entities are required to disclose the outflow of resources recognized in a reporting period for variable payments not included in the subscription liability. Variable payments are those that change over the term of a SBITA due to various factors. The subscription liability is the present value of future payments in a SBITA. Sometimes, variable payments are not included in the calculation of the subscription liability, so this disclosure ensures that financial statement users know how much has been spent on variable payments in the past period. Outflows for other payments not included in the subscription liability, such as termination penalties, must also be disclosed.

Maturity Analysis

Entities must report the principal and interest obligations related to subscription liability, broken down year by year for the next five fiscal years and then in five-year increments thereafter. The principal is the original amount of the liability, while the interest is the cost of using the subscription asset that accumulates over time. These numbers must be reported to maturity, ensuring readers have a clear understanding of future commitments related to SBITAs.

Future SBITAs

Commitments under SBITAs that have not yet commenced must also be disclosed.

Loss Associated With Impairment

If, during the term of a SBITA, the manner or duration of use of the subscription asset becomes impaired, any losses due to these impairments or changes in the subscription liability must be disclosed. Balance restatement details must be reported for the fiscal year of 2023 only.

How does implementing GASB 96 affect my financial statements?

Implementing GASB 96 can significantly impact financial statements, mainly through the recognition of subscription liabilities and corresponding subscription assets. This standard enhances transparency, providing a more accurate representation of a government entity’s present and future financial obligations.