GASB 96 SBITAs and GASB 87 leases: getting the data out of your contracts

Reference article · 5 min read

Software subscriptions rarely sit where the finance office can see them. A cloud case management renewal gets approved by a department director, paid against a recurring invoice or a purchasing card, and filed in a procurement folder or an IT ticket. Equipment leases scatter the same way. GASB Statement 87 on leases and GASB Statement 96 on subscription-based information technology arrangements changed what has to happen at year end: both generally require recognizing an intangible right-to-use asset and a corresponding liability, with note disclosures, rather than expensing payments as they come due.

Both are in effect for most governments, so the question is not whether to comply but how to do it without rebuilding the analysis each year. The work divides into four parts: finding the contracts, deciding what is in scope, pulling a small set of terms out of each one, and carrying the schedules forward. Confirm details against the pronouncements and implementation guides, and with your auditor, since interpretations continue to be issued.

What each standard covers

• GASB 87. Covers contracts conveying control of the right to use another entity's nonfinancial asset, such as buildings, land, vehicles, or equipment, for a period of time in an exchange or exchange-like transaction.
• GASB 96. Covers contracts conveying the same control over another party's information technology software, alone or combined with tangible capital assets.
• Short-term exclusion. Both exclude arrangements whose maximum possible term, counting every extension option whether or not you expect to use it, is twelve months or less.
• Perpetual licenses. A perpetual software license is generally not a SBITA and falls under earlier intangible asset guidance. A subscription bundled with a perpetual license needs a closer read.

The two standards are parallel. If you already built a GASB 87 process, reuse that workpaper structure for SBITAs.

Building the inventory

The inventory is the hard part, and it is a records problem before an accounting problem. Pull from several sources and reconcile them:

• Accounts payable history. Sort vendor payments by cadence. Annual and monthly patterns surface most subscriptions.
• Purchasing card logs. Small departmental subscriptions often never touch a purchase order.
• Contract and procurement files. These carry the actual terms, which AP data does not.
• IT asset and identity records. Single sign-on tenant lists and vendor admin portals reveal software nobody filed paperwork for.
• Budget lines. Accounts labeled software maintenance, dues and subscriptions, or professional services hide many of them.
• Grant-funded programs. Grant purchases often move outside normal procurement channels and get missed.

Expect the first pass to be incomplete. Publishing a draft list to department heads for confirmation usually finds more than another query will.

Scope decisions that cause the most rework

Write down the reasoning when you make each decision. Auditors ask, and next year's staff will not remember.

• Maximum possible term. Measure it from contract language, including extension options, not from what you intend to renew.
• Cancelable periods. Periods in which both the government and the vendor can terminate without significant penalty are generally excluded from the term.
• Services versus software. Staff augmentation, data feeds, and professional services are not necessarily arrangements to use software, and contracts bundle both.
• Capitalization policy. Document a threshold consistent with your other capital asset policies so small subscriptions do not consume the whole effort.

Extracting terms from each contract

For every in-scope arrangement, capture the same fields so schedules can be built mechanically: commencement date, noncancelable period, extension and termination options with your assessment of whether each is reasonably certain to be exercised, fixed payment amounts and timing, variable payments split between those tied to an index or rate and those tied to usage, incentives, and the rate.

The discount rate is the interest rate the vendor charges the government if the contract makes it readily determinable, and otherwise the government's estimated incremental borrowing rate. Document how you derived it. For SBITAs, separate implementation outlays by stage, since preliminary planning and ongoing operation are generally expensed while certain initial implementation costs are capitalized into the subscription asset.

Measurement and the annual update

The liability is the present value of payments expected during the term. The asset generally starts from the liability, plus payments made at or before the term begins and capitalizable implementation costs, less incentives, and is amortized over the shorter of the term or the useful life of the underlying asset.

Build the schedules once, in a form that survives staff turnover: a shared register keyed by contract identifier, with the source document attached and assumptions recorded beside the numbers. Disclosures call for future principal and interest by year for the next several years and in multi-year increments after that, so structure the register to produce that output directly. Each year, reconcile the AP file back to the register, add new arrangements, close terminated ones, and test for remeasurement triggers such as a changed term or revised payment estimate.

What to ask for in new contracts

• A full payment schedule. Get every payment for the entire term, including renewal pricing, in writing before award.
• Unbundled line items. Subscription fees, implementation, data migration, training, and support priced separately.
• Clear termination language. Ask whether cancellation is unilateral, what notice applies, and what it costs.
• Named escalators. If pricing moves with an index or a per-user count, get the mechanism and the base stated in the contract.
• Standard clauses. Put these requirements in your IT solicitation templates so the data arrives with the award instead of being reconstructed a year later.

HQT works with state and local agencies on systems and data integration, including connecting procurement, IT asset, and financial records so recurring reporting draws from maintained sources.

Frequently asked questions