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Deciphering GASB 96 Importance to Businesses and the Public Sector

by Kimi

The Governmental Accounting Standards Board (GASB) is responsible for establishing and improving standards of state and local governmental accounting and financial reporting in the United States. One such standard, GASB Statement No. 96, provides essential guidance on subscription-based information technology arrangements (SBITAs). This article will unpack what GASB 96 is, how it impacts governmental accounting, and why it’s crucial for businesses and governmental entities alike.

Understanding GASB 96

Issued in May 2020, GASB 96 defines the term “Subscription-Based Information Technology Arrangements” (SBITAs) as contracts that provide a public sector entity with the right to use a vendor’s IT software over a given period.

Before GASB 96, there was ambiguity on how to account for SBITAs in government financial statements. GASB 96 provides guidance on recognizing these contracts as right-to-use (ROU) leases, drawing similarities with GASB Statement No. 87 on leases.

Under GASB 96, governmental entities should recognize a right-to-use subscription asset—an intangible asset—and a corresponding subscription liability at the commencement of the SBITA.

Impact of GASB 96 on Financial Reporting

Greater Transparency and Consistency

The primary purpose of GASB 96 is to establish consistency in reporting SBITAs. Before GASB 96, entities used various accounting treatments for these arrangements, leading to a lack of comparability across financial statements. With GASB 96, governmental entities have clear, consistent standards for accounting and reporting SBITAs, fostering greater transparency and comparability.

Adjustments to Assets and Liabilities

With GASB 96, governmental entities will need to recognize new assets and liabilities on their balance sheets. The right-to-use subscription asset is the government’s right to use the vendor’s software over the SBITA term, while the subscription liability is the government’s obligation to make payments for that right. These adjustments could significantly impact the entity’s financial position as represented on the balance sheet.

Importance of GASB 96 to Businesses and Governmental Entities

Businesses Offering SBITAs

For businesses offering SBITAs to governmental entities, understanding GASB 96 is critical for structuring agreements in compliance with these standards. Firms must be prepared to provide necessary data to their public-sector customers to help them recognize and measure their subscription assets and liabilities correctly.

Governmental Entities Engaging in SBITAs

For governmental entities, GASB 96 provides a much-needed framework for accounting for SBITAs. Given the rapid digitalization of public services, governmental entities are increasingly engaging in SBITAs. Following GASB 96 ensures these entities can accurately represent their financial obligations and assets resulting from these agreements.

Auditors and Financial Analysts

For auditors and financial analysts, GASB 96 provides clarity in assessing the financial health of governmental entities. By standardizing the accounting for SBITAs, GASB 96 allows for a more accurate and meaningful comparison across different entities.

Looking Ahead: GASB 96 and the Evolution of Technology

As technology continues to evolve and become an even more integral part of operations, GASB 96 serves as a critical standard to address the emerging and rapidly growing phenomenon of subscription-based IT services. More public entities are shifting away from traditional software purchases towards subscription models, mainly due to the lower upfront costs, scalability, and access to regular software updates these models offer. As such, GASB 96’s role is set to become increasingly crucial in the coming years.

Moreover, as technology develops, the range of products and services covered by SBITAs is likely to expand, encompassing not just software, but also various IT services and infrastructure. GASB 96 provides a sturdy foundation that can accommodate these developments, ensuring continued transparency and consistency in financial reporting.

Navigating the Complexities of Implementation

Implementing GASB 96 may not be without its challenges for governmental entities. The process requires a thorough understanding of the statement, a review of existing SBITAs, and potentially significant changes to accounting systems and processes. There may also be a need for training and capacity building among finance and IT staff.

However, despite these challenges, the benefits of implementing GASB 96—increased transparency, better decision-making, improved stakeholder confidence—far outweigh the costs. The implementation of GASB 96 is a critical step towards better accounting for and management of IT resources in the public sector.

Ultimately, GASB 96 is more than just a new accounting standard. It’s a reflection of the changing landscape of IT services and a vital tool for governmental entities to navigate this shifting terrain. As such, understanding and applying GASB 96 is an investment in not just better accounting, but also better governance and public service delivery.

In an age where information technology has become integral to operations across sectors, GASB 96 is a crucial standard for ensuring accurate and transparent accounting for subscription-based IT arrangements. While GASB 96 directly applies to governmental entities, it’s essential for businesses offering SBITAs, auditors, and financial analysts to understand these standards. By facilitating more consistent and transparent reporting, GASB 96 ultimately contributes to a more accurate representation of the financial position and performance of public sector entities, supporting informed decision-making by various stakeholders.

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