Overview of Statement No. 101
GASB 101, Compensated Absences, introduces updated guidance for the recognition and measurement of various types of accrued leave and related salary payments. Previously, separate recognition criteria were applied for sick leave, vacation, and sabbatical leave. However, GASB 101 streamlines this approach by adopting a single definition that applies to all three types of leave. Additionally, certain disclosure requirements were changed.
Below are some frequently asked questions about the standard and tips and tricks detailing what information should be gathered to successfully implement this standard.
What Are Some Examples of Compensated Absences?
Compensated absences include sick, vacation, paid time off (PTO) and other types of leave.
When is GASB 101 Effective?
GASB 101 is effective for fiscal years beginning after December 15, 2023, and all reporting periods thereafter.
When Are Compensated Absences Recognized for Governmental Funds?
This standard did not change the current recognition guidance for governmental funds. Compensated absences are recognized when they are due and payable. For example, as employee resignations and retirements are known, those relevant liabilities would be recognized when incurred.
When Are Compensated Absences Recognized for Proprietary Funds and Entities Under the Accrual Basis of Accounting?
There are three criteria to meet in order to recognize compensated absences liabilities under the accrual basis of accounting:
- The leave accumulates
- The leave is attributable to services already rendered, and
- It is more likely than not to be either paid or settled through other means
Compensated absences are generally recognized when leave is earned. A key change under GASB 101 is the introduction of the more likely than not concept, meaning that if there is a greater than 50% likelihood, the employee’s leave balances at year-end should be accrued. This evaluation includes sick leave that has been earned by the employee but not paid out upon termination. There are certain exceptions to this recognition criteria, including military leave, parental leave, unlimited leave, and others.
How is More Likely Than Not Estimated?
To determine what is more likely than not, or greater than 50% likelihood of being used, the following should be considered:
- Employment policies
- Historical information about leave usage patterns
- Historical information about forfeiture of compensated absences
What Steps Should I Take Now?
Obtain employment agreements and policies – It is important to obtain the relevant agreements and policies in order to calculate the compensated absences liabilities. Key information to obtain for each type of leave (vacation, sick, personal, etc.) includes:
- Is there a termination payout?
- Is there vesting associated with this type of leave?
- Does this leave accumulate or convert to another leave type?
- What is the payout rate at year-end?
- Is there a payout limit?
Start determining the impact to financial statements – Even if there are only a small number of employment agreements, the calculation of compensated absences may be impacted. It is important to begin to educate those charged with governance on the overall changes that may be forthcoming as they relate to the new GASB standard.
Don’t wait to implement – Avoiding surprises is important with all new accounting pronouncements. Given the time and effort necessary to compile, value and report the compensated absences defined in this standard, it is important to begin the process of evaluation of the impact early in the annual reporting cycle.
Connect with our experts! – TBG has experts in governmental accounting that can assist with implementation of the standard. If you need further guidance or have any questions on this topic, please do not hesitate to reach out to discuss your specific situation.
This material has been prepared for general, informational purposes only and is not intended to provide, and should not be relied on for, tax, legal or accounting advice. Should you require any such advice, please contact us directly. The information contained herein does not create, and your review or use of the information does not constitute, an accountant-client relationship.
