As auditors, it’s important for us to stay on top of the latest accounting standards to ensure financial accuracy, reliability and compliance. For our clients, its even more important as the real-life implementations of new accounting standards isn’t always as easy as it may seem.  GASB Statement No. 96  (GASB 96) Subscriptions, issued by the Governmental Accounting Standards Board, introduced significant changes for government agencies in the accounting for subscription-based information technology arrangements. In this article, we’ll delve into three valuable lessons learned from an auditor’s perspective when looking back at the implementation of GASB 96.

Lesson 1: Is the Agreement a Subscription or a License?

GASB Statement No. 51 and GASB Statement No. 96 represent two distinct chapters in the governmental accounting landscape, each bringing its own set of rules and considerations for auditors and our clients. Understanding how licenses are accounted for under GASB Statement No. 51 has helped us understand what the GASB was intending to achieve when they put GASB Statement No. 96 in place.

GASB Statement No. 51 laid the foundation for accounting for intangible assets, including software licenses. When applying GASB Statement No. 51, we followed a framework that primarily focused on the ownership and control of the underlying software. If an entity obtained ownership rights or control of the software, it was classified as a capital asset, and the costs were capitalized.  This approach, while suitable for tangible assets, posed challenges when applied to subscription-based arrangements where entities didn’t necessarily own the software, they essentially rented the right to use the software. The need for a more nuanced framework became apparent as technology evolved, leading to the development of GASB Statement No. 96.

GASB Statement No. 96 introduces a shift in focus from ownership and control to the right to access the software. The distinction between licenses and subscriptions is now based on whether the entity receives a license that provides the right to use the software (control) or a subscription that grants the right to access the software and any future updates.

In order to determine whether your software arrangement is a license or a subscription, you must scrutinize the agreement to determine whether the entity obtains control of the underlying software (license), free from future payments (other than maintenance) or receives the right to use the software and any future updates (subscription), with rental payments paid until the software use is no longer needed. Within the agreement, it is important to consider whether the payments for purchased software or perpetual licenses contain annual fees for maintenance or support.  Payments that are for maintenance fees and support are excluded from subscriptions if the government can use the underlying software without these fees.

If you have previously recorded subscriptions as capital assets under GASB Statement No. 51, don’t forget to dispose of those in your capital assets and record the corresponding Subscription Asset instead.

Lessons learned from the initial implementation involve developing a keen eye for subtle differences in contractual language and understanding the implications of each classification.

Lesson 2: Understanding Cancellation Rules

Another critical aspect of GASB Statement No. 96 is the consideration of cancellation rules within contractual agreements. Subscription arrangements brought a common challenge that we didn’t see with leases: the annual auto-renewing agreement.  Organizations must carefully evaluate the language surrounding renewal terms and who specifically has the right to renew or not renew.  If either party has the right to renew or not renew with no approval needed from the other party, this is considered a cancellable arrangement and likely has a term of less than 12-months, depending on other term language in the contract.

Finding this language proved to be a challenge as many organizations did not have documentation regarding terms and conditions. This resulted in additional time to track down contract, agreements, terms and conditions and other relevant data that contained language required to assess the applicability of GASB Statement No. 96.

Lesson learned: Cancellation rules vary by contract, and it is imperative to discern whether one party or both parties possess the right to cancel the arrangement without permission from the other party, or if both parties must agree to extend.  These are both cancellable periods that are excluded from a subscription term.

Lesson 3: Posting Journal Entries from Lease/SBITA Software Solutions

GASB Statement No. 96 resulted in the recordation of new assets and liabilities. This brings us to the third lesson learned – the proper posting of journal entries from Lease/SBITA Software Solutions or any relevant accounting system.

Many Lease/SBITA Software Solutions that specialize in GASB Statement No. 96 provide the primary journal entries necessary to be compliant with the pronouncement, but the devil is in the details.  If the accounting structure in the Lease/SBITA Software Solution was not properly set up, it may not be exactly what you need to post your journal entry. For instance, many Lease/SBITA Software Solutions don’t account for an organization “memo funds” for the modified accrual conversion to full accrual entries.  In addition, the journal entries must recognize a current portion and long-term portion of the liability.  These may not be broken out by your Lease/SBITA Software Solutions.  Finally, the reversal of certain prior year entries, such as interest payable may not be provided therefore it is important to understand the key concepts and evaluate accounts to ensure your ending balances are accurate.

Lesson learned: A meticulous approach to posting entries in accordance with GASB Statement No. 96 ensures financial statements are accurate and reliable.


As auditors and clients continue to navigate the complexities of GASB Statement No. 96, these three lessons learned offer valuable insights into the challenges and considerations when applying a “looking back” approach. As you prepare for the next year end close, pay close attention to contract classifications, cancellation rules, and software-generated journal entries to make sure you are set up for success. By incorporating these lessons, year two should be smooth sailing ahead.

If you have any questions, please contact our team today! 

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