Is your organization ready for this GASB update?

by Bonnie Schwieger, CPA

It’s likely you’ve heard about the Governmental Accounting Standards Board (GASB) Statement No. 101, Compensated Absences, update, which changes how governments account for paid leave benefits. But what you might not realize is that it will be effective for audits with fiscal years ending on December 31, 2024.

If you haven’t already, it’s time to take action.

To help you comply and keep this year’s audit running smoothly, here’s what you should know about it, as well as five actions you should take as soon as possible.

What types of leave apply?

As I mentioned, GASB 101 updates how governments account for paid leave benefits, specifically the recognition and measurement guidance for compensated absences. The standard is intended to simplify the approach to the recognition of these absences liabilities, which should include:

• Unused leave balances if all of the following are true:
  • Leave was accrued from services already performed
  • The leave accumulates
  • The leave is more likely than not to be used or otherwise paid out
• Leave that has been used but not yet paid out

What types of leave don’t apply?

If a type of leave affects a small proportion of employees or is relatively sporadic in nature, it should not be recognized as compensated absences. Additionally, leave that will likely be settled through conversion to defined benefit post-employment benefits should not be recognized as a liability for compensated absences.

How should you calculate and recognize liability?

GASB 101 requires the liability to include leave that will be paid out but also used during the employees tenure.

A liability for leave should be measured using an employee’s pay rate as of the date of the financial statements, unless the leave is expected to be paid at a rate different from the employees pay rate at the time the payment is to be made or the leave is not attributable to a specific employee.

Leave that is paid out shortly after year end should be included with salaries payable and recognized in the fund financial statements.

How will the update affect note disclosure requirements?

The GASB 101 update has simplified disclosure requirements. This means you can expect the following changes:

• In the long-term liabilities disclosure, you may now present either separate increases and decreases or a net increase or a net decrease. If your organization presents a net increase or a net decrease, you should indicate that it is a net amount.
• You no longer need to disclose which fund is intended to liquidate the compensated absences liability.

What should you do to prepare?

1. Review your employee handbook.

First things first, take a look at your organization’s employee handbook. Make a list of all types of leave provided and identify any leave types not previously recognized. Be sure to consider if the GASB 101 update will apply to earned sick and safe time (ESST) and floating holidays.

2. Review historical data for each type of leave.

For each type of leave your organization offers, review historical data to determine reasonable assumptions about how employees may use this leave in the future.

3. Update your compensated absences workpaper.

If you identified any additional types of leave your organization offers (see action #1), record these in your compensated absences workpaper.

4. Disclose only net increases or decreases.

To simplify your note disclosure and audit workpaper, consider disclosing only the liabilities’ net increase or decrease.

5. Reach out to your Abdo auditor with any questions.

Making sense of how or if the GASB 101 update applies to your local government’s leave can be complicated. Unfortunately, failing to prepare for the update could put you at risk for not being ready for your local government’s audit or delaying it.

If you’re unsure of how it applies or what you should do to prepare, your Abdo auditor is here to help. In addition to helping you prepare for the update, we can also assist you in getting ready for your audit. To learn more about the next steps you should take, contact us today.