GASB 96 – Subscription-Based Information Technology Arrangements (SBITAs)

GASB Statement No. 96, Subscription-Based Information Technology Arrangements (SBITAs), was issued in May 2020. The statement establishes guidelines for state and local governments for accounting and financial reporting of subscription-based information technology arrangements (SBITAs), which are essentially cloud computing and other IT service arrangements.

GASB 96 is effective for fiscal years beginning after June 15, 2022, and all reporting periods thereafter. Early application of the statement is encouraged.

GASB Statement No. 96, Subscription-Based Information Technology Arrangements (SBITAs), provides guidance for state and local governments on accounting and financial reporting for subscription-based information technology arrangements. This statement was issued in May 2020 and addresses the accounting treatment for cloud computing and other IT service arrangements in the public sector.

The main specifics of GASB Statement No. 96 include:

  1. Definition: GASB 96 defines a Subscription-Based Information Technology Arrangement (SBITA) as a contract that conveys control of the right to use a vendor’s IT software, alone or in combination with tangible capital assets (such as hardware), as specified in the contract, for a period of time in an exchange or exchange-like transaction.
  2. Capitalization: GASB 96 requires governments to capitalize subscription-based IT arrangements as right-to-use subscription assets, which are intangible assets, and recognize a corresponding subscription liability. This treatment is similar to the approach used for leases under GASB Statement No. 87.
  3. Measurement: The initial measurement of the subscription asset should be based on the total subscription liability, which includes the present value of future payments for the SBITA, plus any one-time payments made at the beginning of the contract, minus any incentives received from the vendor.
  4. Amortization: The subscription asset should be amortized over the shorter of the SBITA’s useful life or the contract term, including any options to extend if it is reasonably certain those options will be exercised.
  5. Recognition of outflows: Outflows of resources (e.g., implementation costs) incurred by the government in a subscription-based IT arrangement should be recognized as expenses, unless they meet the criteria for capitalization.
  6. Disclosures: Governments should provide note disclosures in their financial statements related to the SBITA, including a general description of the arrangement, the total amount of the subscription asset, and the total amount of outflows of resources recognized for the arrangement.

GASB Statement No. 96 is effective for fiscal years beginning after June 15, 2022, and all reporting periods thereafter. Early application is encouraged.

Refresher on the ASC 842

The ASC 842 Lease Accounting Standard, also known as Accounting Standards Update (ASU) No. 2016-02, is a set of guidelines established by the Financial Accounting Standards Board (FASB) for accounting for leases. The standard went into effect for public companies in 2019, and for private companies in 2020.

The main goal of ASC 842 is to provide more transparency and comparability in financial reporting by requiring companies to recognize leases on their balance sheets. Under the previous lease accounting standard, ASC 840, leases were classified as either operating or finance leases, with only finance leases appearing on the balance sheet. ASC 842 eliminates this distinction, and requires all leases to be recorded on the balance sheet as assets and liabilities.

This new standard requires companies to re-evaluate their leases and determine whether they are considered a “right-of-use” (ROU) asset and lease liability, and to reflect these on their balance sheet. This will bring more visibility to the long-term obligations a company has as a lessee and will give a clearer picture of a company’s overall debt and assets. The standard also requires companies to disclose additional information about their leases in their financial statements, including the total lease payments, the lease term, and the present value of the lease liability.

The transition to ASC 842 has required significant effort from companies, especially those with complex lease arrangements. Many have had to invest in new systems and processes to comply with the standard, and have had to re-evaluate their lease portfolio and make necessary adjustments.

Overall, ASC 842 aims to provide more accurate and transparent financial reporting for leases, and helps to provide investors and other stakeholders with a clearer picture of a company’s financial position. The standard will continue to be an important area of focus for companies, as they work to fully comply with the new requirements and adapt to the changes in their financial reporting.

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Tax Implications of ASC 842: Lease Accounting Standards


The FASB ASC 842 Lease Accounting changes, which became effective at the end of 2021 for all reporting periods after December 15th 2021, haven’t just changed how leases are handled in books, but also the tax implications that may come along with it.  

There are seven key areas where lease accounting tax implications are impacted. Here, we’ll discuss those seven areas in detail to give you an overview of what’s going on.  

Tax Implications of ASC 842 Changes 

1. Accounting Methods 

This goes without saying that while there are some areas that won’t require as many changes, others may require definite changes. The lease accounting structure needs to be revisited in terms of tax accounting because of the potential change in: 

  • Characterization of leases 
  • Timing of lease 
  • Timing of income 
  • Tenant allowances (general treatment) 
  • Valuation allowance 
  • Lease acquisition costs (general treatments and borrowing costs) 

2. Deferred Taxes – DTA and DTLs 

According to the changes in ASC 842, operating leases should now be recorded as right-of-use (ROU) assets, and will host a corresponding lease liability as well. This will result in book-to-tax items requiring reconciliation from book keepers, specifically having to revisit the new deferred tax liabilities (DTL) and deferred tax assets (DTA).  

This is a temporary change and will reverse over the leases life.  

3. State/Local Taxes 

The new standard requires lease-related ROU assets to be recorded and may therefore increase an organizations’ balance sheet, presenting an ‘inflated statement’, which in turn, may lead to an increase in the taxes. 

This is dependent on state requirements on determining income tax. 

4. Transfer Pricing 

Since lease assets (ROU only) will need to be recorded in the financial statements of organizations, there is a good chance that bookkeepers will have to revise transfer pricing arrangements to adhere to the “arm’s length” standard.  

The chance in financial ratios and profit level indicators will impact the standard directly. 

5. Foreign Taxes 

This is one tax implication that almost everyone was prepared for; the effect on foreign country income tax.  

Just like state and local income taxes depend on where company operations are taking place, the new standard’s requirement for ROU assets being recorded will have a similar impact on foreign country income tax. This bit is mostly dependent on the tax environment of the country where a company, its branch or subsidiary is located.  

6. Property Taxes 

Another impact on leases that will be a result of state, local or foreign tax environment will be property tax levied on leased assets. If ROU assets are considered tangible personal property, property taxes will also be implemented on the assets. 

7. Sales-and-Use Taxes 

Depending on whether local, state or foreign tax environment treats the lease transaction as a taxable purchase or not, organizations may have to pay sales tax on said leases as well. This will also reflect directly on the books 

ASC 842 can get very complicated, especially now that new changes are being implemented. If not handled properly, chances are that you may end up being subject to audit objections. iLeasePro is a lease accounting software that considers all the latest changes and gives you clean, comprehensible and audit-ready books quickly. 

To schedule a free demo, get in touch with us today!  

Effective Dates of ASC 842 Changes & Transition Approach

We have extensively discussed how the implementation of ASC 842 (Lease Accounting) will impact the current and future books of companies across the board who are following GAAP principles. The goal of these changes is to streamline lease accounting, but the implementation process itself is rather complicated – especially if done manually.  

FASB has offered several reliefs to organizations transitioning, which also includes shift of transition dates from December 31st, 2019 to December 31st, 2021. In this article, we will take a closer look at those effective dates and the transition approaches companies have at their disposal. 

Effective Dates of ASC 842 

FASB has thus far given organizations (referred to as entity in their notices) a lot of leeway, considering the complexity of the task. During the transition phase, entities can choose whether they want to apply the changes in ASC 842 on the effective date, recognizing the effect in their opening balance of the next year (in their equity), or a comparative option.  

In the first option, i.e. the Effective Data Option, any and all adjustments made to their opening balance (equity) will report comparative figures (respective to periods) in the financial statement according to legacy GAAP, i.e., in accordance with the older version of ASC 842.  

On the other hand, if an organization chooses to go with the Comparative Option, they can choose to elect the new changes in each topic at the beginning of the next period. The cumulative adjustment that will be presented because of this change will therefore be adjusted in the opening balance (equity) of the new period. 

The effective dates for these changes are as follows: 

  • For Public business entities, the effective date for application of ASC 842 stood at December 15th, 2018, and the interim periods within that year. 
  • For other entities, including public business entities that are not for profit entities or have conduit debt and employee benefit plans that need to be filed with the Securities and Exchange Commission, the final date for applications of ASC 842 stood at Dec. 15, 2019
  • Due to the complexity presented by the implementation along with further changes being discussed, FASB chose to defer effective dates for entities other than public entities (mentioned in point 1) to 2020 via ASU 2020-05. These dates were first deferred to December 15, 2019, but now for “other entities” the date has been deferred to fiscal years that will start after December 15, 2021. The same is applicable for interim periods that will start after December 15, 2022
  • Despite these dates, entities are permitted – and even encouraged – to implement the changes early on. 

There are several transition reliefs that FASB has offered to the transitioners – especially those transitioning early. These include optional accommodations (elected as a package), lease renewals and purchase options and land easements that we will discuss in a separate article. 

Summary of Leases at 12/2 FASB Meeting

TENTATIVE BOARD DECISIONSTentative Board decisions are provided for those interested in following the Board’s deliberations. All of the reported decisions are tentative and may be changed at future Board meetings.

December 2, 2020 FASB Board MeetingPost-implementation Review:

Accounting Standards Update No. 2016-02, Leases (Topic 842). The Board discussed feedback received to date during the post-implementation review (PIR) of Update 2016-02. The staff provided the Board with a report of the staff’s activities as part of the PIR process  and summarized feedback received to date based on its outreach meetings with financial statement users, agenda requests, and the September 2020 public Leases Roundtable. While no technical decisions were made, the staff discussed feedback related to the importance of leasing information to financial statement users, the lessee’s application of the incremental borrowing rate and nonpublic lessee’s application of the risk-free rate, embedded leases, lease modifications, allocation of lease payments, and other ancillary issues. The staff will perform additional research and outreach on the practical expedient that allows nonpublic lessees to use the risk-free rate as the lease discount rate. Specifically, the staff’s research will consider the appropriateness of the risk-free rate and whether the practical expedient should be applied at the underlying class of asset level rather than at an entity-wide level. That research will be considered at a future date as part of agenda request activities. The staff also will consider providing additional educational materials to clarify some aspects of Topic 842 for certain groups of stakeholders.

The staff will continue to perform general outreach with stakeholders and continue to accumulate their feedback for presentation to the Board at future meetings.

Governmental Accounting Standards – Leases

In June 2017, the Governmental Accounting Standards Board (“GASB”) issued Statement No. 87 – Leases which establishes new accounting standards to be applied to all lease transactions for state and local governments. The Standard is effective for fiscal periods beginning after December 15, 2019 with earlier application encouraged.

The governmental standard follows most of the principles established in the new leasing standard issued by the Financial Accounting Standards Board (“FASB”) with some notable exceptions. As with the FASB approach as it pertains to lessees, all leases, except short-term leases, must be recognized on the balance sheet with a lease liability and an offsetting right to use asset. However, short term leases (defined as those leases with a maximum lease term of no longer than 12 months) must use the accounting now in place for operating leases – there is not accounting election that is available.

Most notably, the new GASB standard follows the principle that leases are financings of the right to use an underlying asset. Therefore, with respect to lessees, there is a single amortization method to be applied to the right to use asset which will accelerate expense recognition.

In general, GASB disclosure requirements related to leases are not as onerous as the FASB standard and transition provisions are more flexible.

State and local governments should begin assessing now the extent of their leasing activities and establish a transition plan for implementing the new standard.

For more information on iLeasePro please visit:

New Lease Accounting Guidance Issued

The Financial Accounting Standards Board (“FASB”) issued the new lease accounting standard on February 25, 2016.

As it pertains to lessees, the new standard requires that the liability for all leases (except narrowly defined short-term leases) must be recognized on the balance sheet of a lessee at the discounted present value of future lease payments with an offsetting right of use asset. For most leases, the pattern of expense recognition will stay the same although the new accounting model will require more sophisticated financial calculations and will mandate more monitoring and tracking of lease details.

The FASB decided that for public business entities, the final lease standard will be effective for fiscal years beginning after December 31, 2018 (essentially  January 1, 2019) and for nonpublic business entities, the effective date would be for fiscal years beginning after December 15, 2019 (essentially January 1, 2020).

There is a lot to digest in the new standard but here are a few of the issues that we believe management should be considering sooner rather than later.

  • The effective date may seem far into the future but now is the time to organize a Transition Team, if it is not already in place.
  • The FASB allows lessees to early adopt the new standard. Is it better to fast track the adoption of the standard and not wait until the required effective date?
  • Management should pay particular attention to the transition guidance and the practical expedients that are part of transition. Also remember that the standard requires adoption of the new guidance at the beginning of the earliest comparative period presented.
  • The new guidance contains a new definition of what constitutes a lease. Important concepts in the new definition include whether there is an identified asset as part of the arrangement and whether the lessee has the right to control the use of the identified asset. Although most existing leases will meet this definition, some contracts may require additional judgment.
  • As mentioned earlier, calculations of lease liabilities, right to use assets and related amortization will become more complex. Reassessment of initial calculations is required under certain circumstances. And extensive quantitative and qualitative footnote disclosures are required. Management should consider the need to revise policies and procedures and assess whether an enhanced technology solution is required.

Don’t shortcut the process. Start to plan now!

We at iLease Management LLC believe that the lease technology solution that is selected is a critical element of the transition to the new accounting model. Bringing together all the elements of Lease Analysis, Lease Management and Lease Accounting in one technology solution allows an organization to capture efficiencies that should be a byproduct of new technology adoption. That is why we developed our lease technology solution, iLeasePro. To get more information on the lease accounting change and iLeasePro, please go to our website at

FASB hoping to issue lease accounting standard by February 29, 2016

The Financial Accounting Standards Board


Feb. 9: New U.S. lease accounting rules that will leave deep impacts on many companies’ balance sheets are expected to be issued in the last week of February, sources at the Financial Accounting Standards Board told Bloomberg BNA.

FASB hopes to issue the final lease accounting standard after the trustees of the board’s parent group, the Financial Accounting Foundation, meet Feb. 23 and by the end of Feb. 29, the sources said.

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