Many school districts allow employees to carry over their accrued leave balance at the end of a fiscal year. Some districts have different policies for distinct types of leave. For example, policies may allow for the paying out of accrued vacation leave but not accrued sick leave at termination of employment. Additionally, some districts have different policies for different classes of employees, such as general employees and uniformed employees.
The Government Accounting Standards Board (GASB) issued Statement No. 16, Accounting for Compensated Absences back in 1992, and now after about 32 years, it has issued new guidance. GASB101 is effective for fiscal years beginning after 12/15/2023 or 6/30/2025 and after. As with other GASB changes, it is best to get ahead of what is required.
GASB 101, Compensated Absences, replaces GASB 16, Accounting Compensated Absences. The goal of the standard is to create a more consistent model for accounting for compensated absences that can be applied to all types of compensated absence arrangements.
Statement 16 required that governments recognize a liability for compensated absences because employees are entitled to time off or a cash payment in exchange for services already rendered at the financial statement date. Statement No. 34, Basic Financial Statements—and Management’s Discussion and Analysis—for State and Local Governments, included compensated absences as an example of a long-term liability. Statement 101 hopefully creates consistency in handling several types of absences.
Under GASB No. 101, there are three general criteria that must be met to recognize a liability for unused leave.
- The leave is attributable to services already rendered.
- The leave accumulates; and
- The leave is more likely than not to be used for time off or otherwise paid or settled.
Certain types of leave, such as parental, military, or jury duty are not considered a compensated absence. There is additional guidance regarding the concept of “accumulates” and “more likely than not to be used.” The GASB states that “Leave that accumulates is carried forward from the reporting period in which it is earned to a future reporting period during which it may be used for time off or otherwise paid or settled. In estimating the leave that is more likely than not to be used or otherwise paid or settled, a government should consider relevant factors such as employment policies related to compensated absences and historical information about the use or payment of compensated absences. However, leave that is more likely than not to be settled through conversion to defined benefit postemployment benefits should not be included in a liability for compensated absences.”
Schools will only be required to present the net change rather than the additions and reductions to the compensated absences liability during the year. As this will be audited, the details should be maintained. The new standard also removes the requirement to disclose the fund(s) that would be used to liquidate the compensated absences liability.
To implement the new standard, school districts should:
1.) Ensure they completely understand their district’s compensated absence policies and contractual obligations.
2.) Gain an understanding of what data is needed to be documented and who is its owner.
3.) Ensure the type of compensated absence meets the criteria and whether the absence accumulates or will not likely be used.
4.) Utilize the pay rates in effect for the fiscal year being calculated.
GASB’s intent for statement 101 is to standardize the recognition and measurement model and to better reflect when a school district incurs an obligation. In addition, this model can be applied consistently to any type of compensated absence and will eliminate potential comparability issues between governments that offer different types of leave.
The model will also result in a more robust estimate of the amount of compensated absences that a government will pay or settle, which will enhance the relevance and reliability of information about the liability for compensated absences.
Adam Brigandi, CPA, MBA
Supervisor
Adam is a Supervisor who works with both nonprofit and special education clients. His auditing experience allows him to assist in vital audit functions such as systems testing and analysis.