The Governmental Accounting Standards Board (GASB) Statement No. 96, titled “Subscription-Based Information Technology Arrangements,” was issued in June 2021. This new standard aims to provide guidance on how governmental entities should report and account for subscription-based information technology arrangements. These arrangements include cloud computing and software as a service (SaaS) agreements, which have become increasingly prevalent in the public sector. GASB 96 is designed to address the lack of specific guidance on these types of arrangements in previous accounting standards, and to ensure that governmental entities accurately reflect the economic substance of their subscription-based IT arrangements in their financial statements.
Key Takeaways
- GASB 96 introduces new guidelines for accounting and financial reporting for government entities.
- Key changes include the recognition of infrastructure assets and the requirement to report depreciation for certain assets.
- The impact of GASB 96 on financial reporting includes improved transparency and consistency in reporting infrastructure assets.
- Governmental entities need to ensure proper implementation and compliance with GASB 96 to accurately reflect their financial position.
- GASB 96 differs from previous standards in its treatment of infrastructure assets, which may require adjustments in reporting and accounting practices.
Key Changes and Updates in GASB 96
GASB 96 introduces several key changes and updates that governmental entities need to be aware of. One of the most significant changes is the requirement for governmental entities to recognize a right-to-use subscription asset and a corresponding subscription liability for subscription-based IT arrangements. This means that entities will need to recognize the right to use the IT services over the term of the arrangement, as well as the obligation to make payments for those services. Additionally, GASB 96 provides guidance on how to determine the term of the arrangement, how to measure the right-to-use asset and subscription liability, and how to account for variable payments and renewal options. The standard also includes specific disclosure requirements to provide users of financial statements with information about the nature, amount, timing, and uncertainty of cash flows arising from subscription-based IT arrangements.
Impact of GASB 96 on Financial Reporting for Governmental Entities
The impact of GASB 96 on financial reporting for governmental entities is significant. The standard will require entities to recognize assets and liabilities related to subscription-based IT arrangements on their balance sheets, which will affect key financial ratios and indicators. This could have implications for debt covenants, credit ratings, and other financial metrics that are important for stakeholders and decision-makers. Additionally, the new disclosure requirements will provide greater transparency and insight into the nature and extent of subscription-based IT arrangements, which will help users of financial statements better understand the financial position and performance of governmental entities. Overall, GASB 96 will lead to more accurate and comprehensive financial reporting for subscription-based IT arrangements, which will enhance the usefulness of financial statements for decision-making purposes.
Furthermore, GASB 96 will also impact the budgeting and planning processes for governmental entities. The recognition of right-to-use assets and subscription liabilities will require entities to consider the long-term implications of their subscription-based IT arrangements when developing their budgets and financial plans. This may involve evaluating the costs and benefits of different IT solutions, assessing the impact on cash flows and liquidity, and considering the potential risks and uncertainties associated with these arrangements. By providing a more complete picture of the costs and obligations related to subscription-based IT arrangements, GASB 96 will enable governmental entities to make more informed decisions about their IT investments and resource allocation.
Implementation and Compliance with GASB 96
Implementing and complying with GASB 96 will require governmental entities to take several steps to ensure that they are meeting the requirements of the new standard. First, entities will need to identify all subscription-based IT arrangements that fall within the scope of GASB 96, including cloud computing and SaaS agreements. This may involve working closely with IT departments and service providers to gather relevant information about these arrangements. Once identified, entities will need to assess the terms and conditions of each arrangement to determine the appropriate accounting treatment, including the recognition of right-to-use assets and subscription liabilities.
Entities will also need to develop or update their accounting policies and procedures to reflect the requirements of GASB 96. This may involve establishing new processes for measuring right-to-use assets and subscription liabilities, accounting for variable payments, and disclosing information about subscription-based IT arrangements in financial statements. Additionally, entities will need to train their finance and accounting staff on the new standard to ensure that they have a thorough understanding of its requirements and implications for financial reporting.
Comparison of GASB 96 with Previous Standards
GASB 96 represents a significant departure from previous accounting standards in its treatment of subscription-based IT arrangements. Prior to the issuance of this standard, there was a lack of specific guidance on how governmental entities should account for these types of arrangements, which led to diversity in practice and inconsistent reporting. GASB 96 addresses this gap by providing comprehensive guidance on the recognition, measurement, presentation, and disclosure of subscription-based IT arrangements, which brings greater consistency and comparability to financial reporting in this area.
One key difference between GASB 96 and previous standards is the requirement to recognize a right-to-use asset and a corresponding subscription liability for subscription-based IT arrangements. This represents a fundamental shift in how these arrangements are accounted for, as it aligns with the principles of other recent accounting standards such as ASC 842 for leases in the private sector. Additionally, GASB 96 introduces specific disclosure requirements related to subscription-based IT arrangements, which were not previously addressed in other standards. These disclosures are intended to provide users of financial statements with more comprehensive information about the nature, amount, timing, and uncertainty of cash flows arising from these arrangements.
Challenges and Considerations for Governmental Entities in Adopting GASB 96
Adopting GASB 96 presents several challenges and considerations for governmental entities. One challenge is the complexity of identifying and assessing subscription-based IT arrangements that fall within the scope of the standard. Many entities may have numerous agreements with different service providers, each with unique terms and conditions that need to be evaluated for accounting purposes. This process may require coordination between finance, accounting, and IT departments to ensure that all relevant information is captured and considered.
Another consideration is the potential impact on internal controls and processes. Implementing GASB 96 may require entities to update their systems and procedures for tracking subscription-based IT arrangements, measuring right-to-use assets and subscription liabilities, and disclosing information in financial statements. This could involve changes to accounting software, data collection processes, and internal reporting mechanisms to accommodate the new requirements of the standard.
Furthermore, governmental entities will need to consider the resource implications of adopting GASB 96. This may include dedicating additional time and effort from finance and accounting staff to understand the standard, assess its impact on existing arrangements, develop new policies and procedures, and provide training to relevant personnel. Entities may also need to engage external advisors or consultants with expertise in governmental accounting standards to assist with implementation efforts.
Resources and Support for Governmental Entities in Understanding and Applying GASB 96
To support governmental entities in understanding and applying GASB 96, the GASB provides a range of resources and guidance materials. These resources are designed to help entities navigate the complexities of the standard, address implementation challenges, and ensure compliance with its requirements.
One key resource is the official text of GASB 96, which provides detailed guidance on how to account for subscription-based IT arrangements in accordance with the standard. This document outlines the specific requirements for recognizing right-to-use assets and subscription liabilities, measuring these assets and liabilities, accounting for variable payments, and disclosing information in financial statements.
In addition to the official text of GASB 96, the GASB also provides implementation guides, webinars, workshops, and other educational materials to help governmental entities understand the standard and its implications. These resources offer practical insights into how to apply the requirements of GASB 96 in real-world scenarios, as well as examples and case studies to illustrate key concepts.
Furthermore, governmental entities can seek support from professional organizations, industry groups, and accounting firms that specialize in governmental accounting standards. These organizations often offer training programs, seminars, and consulting services to help entities navigate the complexities of GASB 96 and ensure successful implementation.
Overall, these resources can help governmental entities build their knowledge and capabilities in applying GASB 96, ultimately leading to more accurate and transparent financial reporting for subscription-based IT arrangements.
Sure, here’s a paragraph that mentions a related article to GASB 96:
If you’re interested in learning more about GASB 96 and its impact on government accounting, be sure to check out the insightful article “Understanding the Changes in GASB 96” on The Orange Splat. This article provides a comprehensive overview of the new standards and offers valuable insights into how they may affect financial reporting for government entities. Whether you’re a finance professional or simply curious about the evolving landscape of accounting regulations, this article is a must-read.
FAQs
What is GASB 96?
GASB 96 refers to the Governmental Accounting Standards Board Statement No. 96, which provides guidance on accounting and financial reporting for subscription-based information technology arrangements.
What does GASB 96 cover?
GASB 96 covers the accounting and financial reporting for subscription-based information technology arrangements, including cloud computing arrangements, software as a service (SaaS), and other similar hosting arrangements.
Why was GASB 96 issued?
GASB 96 was issued to address the lack of specific guidance for accounting and financial reporting for subscription-based information technology arrangements, which have become increasingly common in the public sector.
Who does GASB 96 apply to?
GASB 96 applies to state and local governments, including agencies, instrumentalities, and other organizations that follow GASB standards for financial reporting.
When does GASB 96 take effect?
GASB 96 is effective for reporting periods beginning after June 15, 2022, with earlier application encouraged.
What are the key provisions of GASB 96?
Key provisions of GASB 96 include guidance on determining the type of subscription-based information technology arrangement, recognition and measurement of assets and liabilities, and disclosure requirements.
