GASB Update

Elizabeth Thyer, CPA, Partner

Something new for the audit for the fiscal year ended June 30, 2025, will be the implementation of Governmental Accounting Standards Board Statement 101, Compensated Absences. The objective of this standard is to better meet the information needs of financial statement users by updating the recognition and measurement guidance for compensated absences.

The Statement requires a liability for compensated absences to be recognized for (1) leave that has not been used and (2) leave that has been used but not yet paid in cash or settled in noncash terms, such as conversion to postemployment benefits.

Several types of leave are subject to this new measurement and recognition including vacation leave, sick leave, paid time off, jury duty leave, parental leave and military leave, to name a few.

The general rule of recognition is to recognize a liability for leave when it is earned and include the salary related payments in the calculation, such as the employer share of the payroll taxes. To determine whether a liability should be recognized for leave that has not been used, there are three criteria that must be met including (1) the leave is attributable to services already rendered, (2) the leave accumulates and (3) the leave is more likely than not to be used for time off or otherwise paid in cash or settled in noncash terms.

The measurement portion of this standard looks at the unused leave expected to be used or settled, the pay rate at the end of the period and adds the salary related payments at the applicable rates at the end of the period to calculate the compensated absences liability. In prior years, the liability has been calculated at the rate of pay in effect on the last day of the fiscal year, however, with the implementation of this standard, if some or all of the leave will more likely than not be paid at a different rate, the updated rate will be used to measure that portion of the liability at the end of the period.

The implementation of Governmental Accounting Standards Board Statement 101 will also change the note disclosures for compensated absences. The note disclosure will include changes in the compensated absences liability as part of the long-term liability disclosure; to be reported as either a separate increase and decrease during the period or a net increase or a net decrease for the period with the indication that it is a net amount. The note disclosure will no longer be required to include which governmental funds are typically used to liquidate the compensated absences.