The Governmental Accounting Standards Board (GASB) issued Statement No. 101, Compensated Absences, to align the recognition and measurement guidance for compensated absences and refine the related disclosure requirements.
While superseding Statement No. 16, Accounting for Compensated Absences, the updated guidance unifies the accounting for all types of compensated absences under one model.
What Are Compensated Absences?
Governments routinely provide benefits to employees in the form of compensated absences.
Compensated absences represent leave for which employees may receive:
- Cash payment when the leave is used for time off
- Other cash payments, including payments for unused leave upon termination of employment
- Noncash settlements, including conversion to defined benefit postemployment benefits
Compensated absences generally don’t have a set payment schedule and may include:
- Vacation leave
- Sick leave
- Paid time off
- Parental leave
- Bereavement leave
- Certain types of sabbatical leave
How Are Compensated Absences Recognized and Measured?
In an effort to enhance comparability between governments that offer different types of leave, the updated guidance introduces a recognition and measurement model that can be applied consistently to all types of compensated absences.
Under the updated guidance, governments are required to record a liability for compensated absences in financial statements prepared using the economic resources measurement focus when the following criteria is met:
- The absence accumulates
- The absence is attributable to services rendered
- The absence is more likely than not to be either paid or settled through other means
Determining whether an absence is more likely than not to be either paid or settled requires governments to develop an estimate that considers:
- The government’s employment policies related to compensated absences, which may differ by employee class
- Whether benefits for services rendered will be eligible for payment in the future
- Historical information about payment or forfeiture of compensated absences
The compensated absences liability is generally calculated by multiplying the accumulated leave that’s more likely than not to be paid or settled—often measured in hours—by the employee’s pay rate as of the financial reporting date.
The compensated absences liability also includes the following:
- Certain salary-related payments that are both directly and incrementally associated with payments for compensated absences—for example, employer share of Social Security and Medicare taxes
- Accumulated leave that’s more likely than not to be paid to an employee through a distribution to an individual account to be used for specified purposes
However, accumulated leave that’s more likely than not to be settled through a conversion to defined benefit postemployment benefits aren’t included in the compensated absences liability.
Governments that prepare financial statements using the current financial resources measurement focus should recognize a liability on a basis consistent with governmental fund accounting principles. The amount of compensated absences recognized as expenditures should be the amount that would normally be liquidated with expendable available financial resources.
What Disclosures Are Required?
Under the updated guidance, governments aren’t required to disclose the governmental funds used to liquidate the compensated absences liability.
Governments are also allowed to disclose either:
- The gross increases and decreases
- Only the net change in the compensated absences liability
Governments that disclose a net increase or net decrease should indicate it’s a net amount.
What Are the Effective Dates?
The updated guidance is effective for fiscal years beginning after December 15, 2023, and all reporting periods thereafter.
The changes should be applied retroactively by restating the financial statements for all prior periods presented. If restatement for prior periods isn’t practicable, the cumulative effect of applying the proposed guidance should be reported as a restatement of beginning net position for the earliest period restated.
Early application is encouraged.
We’re Here to Help
For more information on how the updated guidance for compensated absences could affect your organization, contact your Moss Adams professional.