Software Accounting
Subscription based information technology arrangements (SBITA) - GASB 96
Effective for reporting periods beginning July 1, 2022, the university reports subscription-based activity in the university's financial statements and footnotes in accordance with Governmental Accounting Standards Board (GASB) Statement 96. GASB 96 is based on the principle that subscriptions to information technology are financings of the right-to-use an underlying intangible asset.
SBITA Threshold
When a contract for Subscription Based Information Technology Arrangements (SBITA) exceeds a total cost greater than $100,000 with a noncancellable term greater than twelve (12) months, including options to extend, a subscription asset and liability should be recognized.
SBITA Accounting
Subscribers to another party's information technology record an intangible right-to-use subscription asset and a corresponding subscription liability. The subscription liability is measured at the present value of the subscription payments expected to be made during the subscription term. The subscription asset is measured as the sum of the initial subscription liability amount plus payments made to the vendor at or before commencement of the subscription term plus implementation costs to put the technology into service. Subscription payments made result in a reduction of the liability and recognition of interest expense. Subscription assets will be amortized over the shorter of the subscription term or the useful life of the software.
SBITA Journal Entry Example
Department Responsibilities
- Report subscription-based contracts to Business Affairs within 30 days of contract execution
- Evaluate likelihood of available extensions and early terminations
- Determine stages of implementation costs
- Notify Business Affairs of amendments or other subscription changes
- Record monthly/quarterly/annual subscription payments per Account Code guidance from Business Affairs
Business Affairs Responsibilities
- Determine appropriate accounting for subscription-based software
- Communicate proper account code for subscription payments to department
- Add subscription-based contracts to accounting database and update as needed
- Calculate and record subscription asset and liability
- Reconcile SBITA accounting/activity
- Record monthly entries to adjust/amortize SBITAs
- Prepare financial statement footnotes and other reports as needed
Definitions
SBITA
A SBITA is a subscription-based contract over a period of time to use vendor-provided information technology to access software and associated tangible capital assets without a perpetual license or title. SBITA's have the following conditions:
- The use of underlying software is identified, implicitly or explicitly
- Control of the right to use another party's information technology software is transferred through a subscription. Control is transferred when: subscriber has direct use and benefit of the software defined in the contract.
- The contract is a subscription for a set period of time
- There is an exchange or exchange-like transaction
Subscription Term
The subscription period during which the subscriber has a noncancelable right to use a vendor-provided information technology, plus the following periods, based on all relevant factors, if applicable include:
- Periods covered by a subscriber's option to extend the SBITA if it is reasonably certain that the subscriber will exercise that option.
- Periods covered by a subscriber's option to terminate the SBITA if it is reasonably certain that the subscriber will not exercise that option.
- Periods covered by a vendor's option to extend the SBITA if it is reasonably certain that the vendor will exercise that option.
- Periods covered by a vendor's option to terminate the SBITA if it is reasonably certain that the vendor will not exercise that option.
- Periods for which both the subscriber and the vendor have an option to terminate the SBITA without permission from the other party (or if both parties must agree to extend) are cancelable periods and are excluded from the subscription term.
Implementation costs
Stages of Implementation Cost
Additional costs associated with a SBITA other than subscription payments to the vendor should be ground into three implementation cost stages. If multiple modules are implemented at different times, the initial implementation stage is completed when the first independently functional module is deployed, regardless of when subsequent modules are implemented. Additional modules that perform new tasks or improve efficiency on current tasks should be capitalized as deployed.
| STAGE | ACTIVITIES | ACCOUNTING |
|---|---|---|
| Preliminary Project Stage |
| Expensed as incurred |
| Initial Implementation Stage |
| Generally capitalized as part of the subscription asset |
| Operation and Additional Implementation Stage |
| Generally expensed as incurred unless activity meets capitalization criteria |
NOTE: Training costs should be expensed as incurred, regardless of the stage in which they are incurred.
software account codes to use
Perpetual - 20202 / 40812 / A8022 One-time payment for indefinite and unrestricted | Examples: ERP systems, education and research platforms, |
Support and Maintenance - 23513 Payments for software related services that | Examples: Upgrades, updates, patches, fixes, troubleshooting, |
SBITA - 24407 Recurring payments totaling more than $100,000 | Examples: Controlled cloud-based platforms, ERP software, |
Other - 24203 Payments for software that does not qualify as | Examples: A fixed term access to software costing |
Prepaid Software Expenditures - A5023 Payments in advance for software that does not | Examples: A payment less than $100,000 made |
Excluded from SBITA accounting (GASB 96)
- Perpetual license software
- Combination of IT software and tangible capital assets where the software is insignificant. Qualifies as a Lease under GASB 87
- Cloud-based storage where the subscriber is not in control of the platform
- Public-Public/Public-Private Partnerships (GASB 94)
- Non-exchange contracts