Implementing GASB Statements 94 and 96

The latest in GASB updates

The Governmental Accounting Standards Board (GASB) issued Statement 96, Subscription- Based Information Technology Arrangements (SBITAs), to provide accounting and financial reporting guidance for contracts conveying the right to utilize another party’s information technology (IT) software. Further, GASB issued Statement 94, Public-Private and Public-Public Partnerships and Availability Payment Arrangements, to establish guidance for public-private and public-public partnerships that are not subject to Statements 60 or 87. Keep reading to learn more:

What is GASB S-96?

GASB S-96 is effective for periods beginning after June 15, 2022 (fiscal years ending June 30, 2023, and thereafter).

It’s common today for government entities to enter into subscription-based contracts to use vendor-provided information technology. This is due to the ease of access to vendor software and the related delivery methods. Before the issuance of GASB S-96, there was no accounting or financial reporting guidance specifically for SBITAs.

According to the GASB, this statement aims to establish uniform accounting and financial reporting requirements for SBITAs; improve the comparability of financial statements among governments that are in SBITAs; and enhance the understandability, reliability, relevance, and consistency of information about SBITAs.

What are the advantages of an SBITA?

Establishing an SBITA permits an entity control of the rights to use another party’s IT software. This means that the government organization can, for a specified period of time, obtain the present service capacity from the use of the underlying IT asset and determine the nature of use of the assets, in an exchange or exchange-like transaction. It is important to note that GASB S-96 does not apply to contracts that fall under the scope of GASB S-87, Leases.

How do organizations recognize and measure GASB S-96?

Government entities should use the accrual basis when recognizing a subscription liability and an intangible right-to-use asset at the commencement of the term. Make sure to include the following in the calculation of an SBITA:

  • Fixed payments
  • Variable payments that depend on an index or rate
  • Variable payments that are fixed in-substance
  • Any subscription contract incentives receivable from the SBITA vendor
  • Any other payments to the SBITA vendor associated with the contract that are reasonably certain of being required based on an assessment of all relevant factors
  • The liability should be discounted using the interest rate that the vendor charges the government

Also note that the subscription asset should be amortized in a systematic and rational manner over the shorter of the subscription term or the useful life of the underlying IT assets, according to the GASB’s guidance.

What is GASB S-94?

GASB S-94 is effective for periods beginning after June 15, 2022 (fiscal years ending June 30, 2023, and thereafter).

This pronouncement was issued to offer guidance to public-private and public-public partnerships (P3s) not subject to Statements 60 or 87 – it also offers improvements to GASB Statement 60, Accounting and Financial Reporting for Service Concession Arrangements. As GASB found that some P3 transactions didn’t meet the qualifications of Statement 60, it identified opportunities to improve Statement 60’s guidance for service concession arrangements (or, SCAs). Statement 94 now supersedes GASB Statement No. 60.

What are P3s?

The GASB defines public-private partnerships and public-public partnerships (P3s) as arrangements where a government entity contracts with an operator to provide public services by conveying control of the right to operate a nonfinancial asset for a period of time in an exchange or exchange-like transaction.

What are SCAs?

The GASB defines a service concession arrangement (SCA) as a P3 arrangement between a transferor and an operator in which all of the following criteria are met:

  • The transferor conveys to the operator the right and related obligation to provide public services through the use and operation of an underlying P3 asset in exchange for significant consideration
  • The operator collects and is compensated by fees from third parties
  • The transferor determines or has the ability to modify or approve which services the operator is required to provide, to whom the operator is required to provide the services, and the rates that can be charged for the services
  • The transferor is entitled to significant residual interest in the service utility of the underlying P3 asset at the end of the arrangement

What changes can P3s expect?

P3s will recognize receivables for the present value of installment payments to be received, if any. It will also defer resources inflows for the assets recognized, including payments received from the operator at or before the start of the P3 term. Further, under this guidance, P3s can expect to recognize all liability for installment payments to be made, if applicable.

If the underlying P3 asset is a new or existing asset that was improved and the P3 is also an SCA, the entity will recognize the capital asset at acquisition value when placed into operation. It can also expect to recognize an intangible right-to-use asset.

If the P3 is not an SCA, it will recognize a receivable for the capital asset measured at the operator’s estimated carrying value as of the future date of the transfer in ownership. Additionally, it will recognize the underlying P3 asset until ownership is transferred. The liability for the underlying P3 asset will be measured at the estimated carrying value as of the future date of the transfer.

What are your next steps?

As a government entity leader, it’s important to understand how these changes can impact your organization. To learn more about our GASB Statement 96 tool, reach out to our team. We’ll provide a demo and consultation.

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