GASB 96 SBITA Audit Procedures: Subscriptions, Implementation Costs and Completeness

Governments buy more software as a subscription than they own as a license. GASB Statement 96 brought those contracts onto the balance sheet. For the audit team, the work has three parts: deciding which contracts are in scope, testing the measurement of the liability and asset, and proving that the list of contracts is complete. This guide describes the model in GASB Statement 96 (May 2020) and turns it into audit procedures. Paragraph references are to the Statement.

What a SBITA is

A subscription-based information technology arrangement is a contract that conveys control of the right to use another party's IT software, alone or together with tangible capital assets, for a period of time in an exchange or exchange-like transaction. Control has two parts. The government has the right to obtain the present service capacity of the underlying IT assets, and it has the right to determine the nature and manner of their use. Both must be yes (paragraph 7).

The standard is effective for fiscal years beginning after June 15, 2022, and all reporting periods thereafter (paragraph 62), which put the first reporting at June 30, 2023 or December 31, 2023 for many governments.

What is outside the standard

Paragraph 4 lists scope exclusions that matter in practice:

• contracts that meet the lease definition in GASB 87 where the software component is insignificant compared with the cost of the underlying tangible capital asset, such as a computer with operating software;
• public-private and public-public partnerships, which fall under GASB 94; and
• perpetual software licenses, which fall under GASB 51 on intangible assets.

Paragraph 8 adds that a contract that solely provides IT support services is outside the definition, while a contract that contains both a right-to-use IT asset component and a support component is in scope. Short-term SBITAs, with a maximum possible term of 12 months including any options to extend, are excepted from recognition, and their payments are expensed (paragraphs 13 and 14). The auditor should look for contracts that split their price across several components, because bundled contracts need the components identified.

Recognition and measurement

A government recognizes a subscription liability at the present value of the expected payments, with an offsetting subscription asset, an intangible asset. The subscription term begins when the asset is placed into service, which happens after initial implementation is complete and the government has obtained control. Contracts often bundle hardware, software, implementation, training and maintenance, and each component may have its own term, so the government identifies which components go into the asset and liability and which are expensed.

The initial asset is the initial liability, plus prepayments made before commencement, plus capitalizable implementation costs, less vendor incentives received at or before commencement.

The three implementation cost stages

Paragraph 29 groups activities into three stages, and the nature of the activity is the determining factor in where a cost falls (paragraph 38):

Training costs are expensed in every stage (paragraph 39). If no subscription asset is recognized, such as a short-term SBITA, initial implementation costs are expensed (paragraph 36). Data conversion is an initial implementation activity only to the extent it is necessary to place the asset into service (paragraph 31). With a multi-module SBITA, the asset is placed into service when the first independently functional module is implemented, and later module work follows the subsequent-outlay rules (paragraph 30).

Relationship to the lease standard

Many of the Statement's definitions and provisions mirror the lessee guidance in GASB 87, including contract term, measurement and the splitting of multi-component contracts. The Statement says that, to the extent relevant, its standards are based on those in Statement 87. The cost stages are the part that is specific to GASB 96.

Where the audit risk sits

• Completeness. Departments can buy software on purchasing cards, through grants and on click-through terms, and those contracts can bypass finance.
• Scope judgment. Whether a contract conveys control, whether it is a SBITA or a support contract and which standard governs a bundle.
• Cost classification. Implementation invoices describe work in vendor language. The stage depends on the activity, not the invoice heading.
• Measurement. Term, payment streams and options drive the liability. A wrong term misstates both sides.
• Controls. Baker Tilly recommends segregating duties for preparing and approving the entries and for maintaining amortization schedules, and building audit trails from individual SBITA terms to ledger balances.

Audit procedures

1. Test completeness. Obtain the vendor master, search accounts payable and purchasing-card data for software and cloud vendors, and compare the results to management's SBITA register. Ask IT for its application inventory. Reconcile differences.
2. Evaluate scope. For a sample of contracts, read the terms and confirm management's conclusion on control, on the exclusions and on whether the contract was signed solely for support.
3. Test the term and payments. Agree term, fixed payments, renewal and termination options to the contract.
4. Recalculate. Recompute the liability and the opening asset, including prepayments, capitalizable implementation costs and vendor incentives.
5. Test implementation costs. For capitalized and expensed items, read the invoice and statement of work, assign the stage and trace to the accounting.
6. Test amortization. Re-perform the schedule and confirm the period used.
7. Check disclosures. Confirm the notes describe the SBITAs and show principal and interest requirements to maturity.
8. Evaluate controls. Review the contract intake process and the review of calculations.

Worked example

Riverside County subscribes to a permit management platform. The platform goes live, and the three-year subscription term commences, on July 1, 2025, with annual payments of $100,000 due at the end of each year. For illustration, assume a discount rate of 4 percent.

Liability. The present value is $100,000 / 1.04 + $100,000 / 1.04^2 + $100,000 / 1.04^3 = $96,153.85 + $92,455.62 + $88,899.64 = $277,509.

Costs before go-live.

Subscription asset. Initial liability $277,509, plus capitalized implementation cost $60,000, equals $337,509, with no prepayments or incentives in this example. The county amortizes it over the subscription term.

Auditor's tests. The auditor reads the statement of work and finds that $12,000 of the "configuration" invoice is for end-user workshops. Under the stage guidance, training is expensed, so the capitalized amount falls to $48,000 and the asset to $325,509. The auditor proposes the adjustment of $12,000, and the file records the evaluation of materiality.

Completeness. The auditor's search of purchasing-card data finds a building department subscription for inspection software, $18,000 a year, that is not in the register. The auditor asks for the contract and evaluates scope and term.

Common misses

• Treating a support-only contract as a SBITA, or a SBITA as a support contract.
• Capitalizing training because it appears on a configuration invoice.
• Missing subscriptions bought outside the central purchasing function.
• Using the wrong term when an option is reasonably certain to be exercised.

Related reading

See GASB 101 compensated absences, GASB 87 lease audit procedures and ASC 350-40 cloud computing implementation costs for the private-sector counterpart.

Where CORAA fits

CORAA prepares ready-to-review audit files for US CPA firms, including contract registers, recalculations and completeness reconciliations. The firm keeps the client, the review and the signature. See /us.

Sources

• GASB, Statement No. 96, Subscription-Based Information Technology Arrangements (May 2020): https://d2x0djib3vzbzj.cloudfront.net/GASBS%2096.pdf
• Baker Tilly, GASB cloud computing guidance: https://www.bakertilly.com/insights/gasb-cloud-computing-guidance
• Baker Tilly, GASB 96 implementation tips: https://www.bakertilly.com/insights/gasb-96-implementation-tips
• Wipfli, Time to implement GASB 96 for subscription-based IT agreements: https://www.wipfli.com/insights/articles/np-time-to-implement-gasb-96-for-subscription-based-it-agreements

AU-C references are to AICPA Professional Standards, paraphrased here; read the standard itself before relying on a requirement. This page is guidance, not professional advice. Report an error