Ohio University's General Accounting and Finance Reporting (GAFR) Office has compiled frequently asked questions in relation to the General Accounting Standards Board (GASB) Statement 96. If you have additional questions, please contact us by emailing finance@ohio.edu.
Definitions
For the purposes of applying GASB Statement 96, a Subscription Based Information Technology Arrangement (SBITA) is a contract that conveys control of the right to use another party's (a SBITA vendor's) IT software, alone or in combination with tangible capital assets (the underlying IT assets), as specified in the contract for a period of time in an exchange or exchange-like transaction.
Frequently Asked Questions
We plan on using the software for many years, should we use the long-term subscription object code?
Not necessarily. Choosing the correct object code is based on the length of the noncancelable term language in the contract and not on our intention of time to use.
What is meant by noncancelable regarding a contract term?
When calculating a contract’s maximum possible term, only the noncancelable part of the term is to be considered. The noncancelable part of the term is the period when we have the legal right to use the software — including options to extend guaranteed in the contract without future approval of vendor. Periods for which both OU and the third-party vendor have the option to terminate the contract without permission from the other party or if both parties must agree to extend are cancelable and not used in the calculation of the contract term.
Once a contract is coded to long term, do we always charge purchase orders related to the contract as long term?
No. A contract can start out as long term, but the later years of the contract may include cancelable one-year terms. When purchasing these cancelable one-year terms, the purchase order should be charged to SHORT TERM. It is important to review the contract to determine the length of time we are contractually liable for.
Our contract includes options to extend for 3 additional years beyond the first year but we only plan on using the software for 1 year. Is this long term or short term?
This is a long-term subscription as the maximum possible term is 4 years. If we do later decide to continue to use the subscription and exercise the options each year, it remains a long-term contract. If there are cancelable years after the guaranteed option years have ended, the contract may change to short term at that time. Note: Contracts that contain options to extend may require a determination throughout the contract as to any change of our decision to exercise the options.
What is the difference between a contract that includes options to extend verse contract language allowing renewals?
Options to extend included in a contract are guaranteed by the vendor and we only need to accept/exercise them or not. The vendor must allow the extension if we exercise it. Therefore, this is all part of the noncancelable term calculation.
Renewal language in contracts is often accompanied by language for which either party can choose not to renew with notice. These renewal terms would be considered cancellable and not part of the maximum possible term.
Note: Some of our older contracts contain automatic renewal language or do not allow for the vendor to cancel which does make the contract long term.
We must mutually agree with the vendor to purchase an annual software subscription each year but we plan to continue to use the software indefinitely. Is this long term or short term?
These would be short term as they are considered individual short term contracts. There is no requirement for either party to continue to sign a new contract in the future.
A 3 year contract contains a termination for convenience clause by either party. Is this long term or short term?
This is a short term contract. Only noncancelable periods of time are used in the calculation of the maximum possible term. A contract containing a termination clause by either party for any time for any reason, reduces the maximum possible term of the contract to the notification period. The notification period for this example is 30 days so the contract is short term. Note: A termination for convenience clause must be valid for either party. If only one party/side to the contract has the ability to terminate for any time for any reason, this adjustment to the calculation of the noncancelable time period does not apply.
Sample Termination for Convenience Clause
Either party may terminate this agreement at any time for any reason at its sole discretion by providing the other Party no less than thirty (30) days advance written notice thereof.
The contract contains many termination clauses but all depend on either a breach of contract or certain conditions. Can these change a contract to short term?
No. These conditional termination periods do not qualify as cancelable periods.