Definition
GASB Statement 96 applies to contracts that convey control of the right to use another party's information technology software, alone or with tangible capital assets, for a period in an exchange or exchange-like transaction. The government recognizes a subscription liability measured at the present value of payments and an intangible right-to-use subscription asset, similar to the lessee model in GASB Statement 87. Short-term arrangements, with a maximum possible term of 12 months or less including options to extend, are expensed as paid. Contracts that include a lease are evaluated under GASB 87.
Why it matters in an audit or review
Cloud software contracts are easy to miss because they are often approved by departments outside finance. Auditors inquire about software contracts, read terms and renewal options, search for unrecorded liabilities, and recompute the liability and amortization. Implementation costs are treated separately from the subscription payments.
Example
Illustrative: a city signs a three-year software subscription at $30,000 per year, paid at year end. At a 4% discount rate the liability is about $83,250, the present value of three payments, and the city also records a right-to-use asset of about the same amount.
Common mistakes
- Treating multi-year cloud contracts as plain expense.
- Missing renewal options when determining the term.
Sources
- GASB Statement No. 96, Subscription-Based Information Technology Arrangements: https://storage.gasb.org/GASBS%2096.pdf
Definitions paraphrase AICPA and FASB guidance; read the standard itself before relying on a requirement. Example figures are illustrative. This page is guidance, not professional advice. Report an error