The Governmental Accounting Standards Board Statement 101 (GASB 101) addresses the accounting and financial reporting requirements for compensated absences. Compensated absences refer to leave benefits that employees earn, such as vacation, paid time off (PTO), and sick leave, which can be used in future periods or cashed out upon separation from employment. The prior standard, GASB 16, provided guidance for specific types of leave and had become outdated.

Main Objective

The purpose of GASB 101 is to improve the clarity, consistency, and comparability of financial reporting related to compensated absences. This standard applies to all state and local governmental entities, ensuring these entities account for compensated absences in a comparable manner.

Upon implementing GASB 101, entities are required to recognize a liability for compensated absences that are attributable to services already rendered, that accumulate, and that are probable of being used for time off or otherwise settled in cash.

Under GASB 16, sick leave was only accrued if paid upon termination and did not include an estimate for sick leave that was likely to be used. Based on this change, the compensated absence liability may increase under GASB 101. Governments will need to use historical information about leave usage and payments upon termination to determine the compensated absence liability.

Exceptions

Under GASB 101, if leave is dependent upon the occurrence of a sporadic event that affects a relatively small proportion of employees in a particular reporting period, such as parental or military leave, the liability should be recognized when the leave commences. Unlimited leave and holiday leave taken on a specific date should be recognized as a liability when used. 

The liability for compensated absences should be measured based on the pay rates in effect at the financial statement date, including any employer-related costs such as payroll taxes and benefits.

Disclosures

Entities must disclose information about compensated absences in their financial statement. The new standard removes the current requirement to disclose both the gross additions and deductions to the liability. Instead, the entity is only required to disclose the net change. The requirement to disclose which funds are typically used to liquidate compensated absence liabilities is also removed. 

GASB 101 is effective for reporting periods beginning after December 15, 2023.

Please reach out to the KT Government team for questions or assistance with implementing GASB 101 at your entity.