On June 16, the Governmental Accounting Standards Board (GASB) issued Statement No. 101, Compensated Absences. Statement 101 replaces Statement No. 16, Accounting for Compensated Absences, to align recognition and measurement guidance for all types of compensated absences under a unified model, resulting in greater consistency and improved comparability.
The new standard defines three general criteria for recognizing a liability for unused leave balances:
- 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.
Some types of leave, such as parental leave, military leave, and jury duty, are not recognized as a liability until the leave actually commences.
Sabbatical leave may or may not be considered a compensated absence. If the employee is not required to perform duties of a different nature for the institution (e.g., research instead of teaching) during the sabbatical, then the sabbatical is a compensated absence. Thus, a “typical” academic sabbatical is a compensated absence.
Some existing disclosures are eliminated or made optional by Statement 101. For example, institutions may now disclose the net annual change in the liability for compensated absences, rather than the gross increases and decreases, as long as the change is identified as being a net change.
The most controversial aspect of Statement 101, if the reaction of attendees at NACUBO’s 2022 Higher Education Accounting Forum (HEAF) is any indication, is the requirement to record a liability for a portion of accrued sick leave, even if that leave does not vest. This is because of the third criterion noted above, the “more likely than not” test.
In a session at HEAF, Alan Skelton, GASB’s director of research and technical activities, noted that the board specifically rejected vesting as a recognition criterion. He indicated that institutions do not have to record the entire unused sick leave as a liability, just the portion determined to have more than a 50 percent likelihood of being used. Those in attendance questioned the usefulness of increased compensation expense to financial statement readers.
NACUBO’s comment letter on the compensated absence exposure draft pointed out that—
[L]iabilities are defined in Concepts Statement 4 as “present obligations to sacrifice resources that the government has little or no discretion to avoid.” Unvested leave balances do not require the government to sacrifice resources to settle the obligation and therefore do not meet the definition of a liability. The obligation to provide paid leave in a future period is not a (present) binding obligation; when the benefit is nonvesting the government can avoid sacrificing resources.
In addition to an employer not being bound to sacrifice resources, we do not believe that the expense associated with the liability meets the definition of an “outflow of resources” because there is no consumption of net assets that is applicable to the reporting period when the benefit is earned.
Statement 101 is effective in FY25. Earlier application is encouraged. Changes adopted at transition to conform to the requirements of Statement 101 should be reported as a change in accounting principle in accordance with the requirements of Statement No. 100, Accounting Changes and Error Corrections.