GASB 101 Podcast Series – Part Three: Evaluation of the Current State of Policies & Procedures

CHRISTIAN FUELLGRAF: This is Cherry Bekaert's Government and Public Sector podcast series. In each episode we hear from experts on the latest challenges, trends, and opportunities affecting the government and public sector. I am Christian Fuellgraf, leader of Cherry Bekaert's Government and Public Sector industry team.

DANNY MARTINEZ: Today is the third part of our four-part series on GASB 101, Compensated Absences Implementation. I am Danny Martinez, advisory partner at Cherry Bekaert, and I lead our national government and public sector accounting advisory team.

DANNY MARTINEZ: Our team provides a wide variety of governmental accounting assistance, including ACFR prep, audit preparation, and accounting standards implementation, helping constituents focus on strategic needs while we handle accounting. We have a guest in each part of this series as we walk through the four phases of implementation.

DANNY MARTINEZ: I welcome Bailee Steinle, an advisory senior and a GASB 101 implementation team member to the show.

BAILEE STEINLE: I am Bailee Steinle, advisory senior at Cherry Bekaert. I joined the firm in September 2024 and previously spent one year in the postgraduate technical assistant program at the Governmental Accounting Standards Board.

BAILEE STEINLE: That program allowed recent graduates to become full-time members of project teams developing accounting standards from start to finish, which equipped me to bridge the theoretical side of accounting with real-world application for clients. At Cherry Bekaert I have worked on ACFR prep, SEFA prep, and I am excited to be working on the GASB 101 project and standard implementation.

DANNY MARTINEZ: From our initial work on GASB 101, having you on the team and your GASB experience has been beneficial to our clients. As a reminder, this is the third part of our series. In part one, Scott Anderson, who also spent time at GASB as a practice fellow, and I discussed what GASB 101 is and the first phase of implementation, understanding the statement.

DANNY MARTINEZ: In part two, Tatiana Britton discussed completeness of population and how to ensure you have captured all compensated absences. If you missed those episodes, they are available on your feed and the Cherry Bekaert website.

DANNY MARTINEZ: Today we will discuss phase three, which is evaluation of the current state of your policies, procedures, and controls, identify what may be missing, and how to update them. We will also discuss the importance of compiling the implementation work into an implementation memo for auditors.

DANNY MARTINEZ: The first step in phase three is assessing current processes and controls around accounting for compensated absences. Bailee, why is this important during implementation of a new pronouncement?

BAILEE STEINLE: The first considerations are completeness and accuracy. We want to ensure all data required for compliance is being captured. This is particularly important with GASB 101 because many governments will include new types of leave or portions of leave in their liability that they did not include before.

BAILEE STEINLE: By performing a step-by-step assessment of processes and controls, we get a clear picture of how information is currently captured, which allows us to identify gaps or deficiencies preventing true and complete data collection. We also evaluate efficiency to determine whether processes can be streamlined.

BAILEE STEINLE: Improving efficiency often improves accuracy. Performing this assessment at the beginning of implementation allows entities to be structured for success and avoid having to backfill missing data later.

DANNY MARTINEZ: Many governments have been using the same spreadsheets and processes for years, so the efficiency lens is valuable. In addition to processes and controls, we are also reviewing policies and procedures. What are we finding in those reviews?

BAILEE STEINLE: There is significant variation in policies and procedures because state or local statutes, government size, and structure influence them. Common items include leave accumulation rates, accumulation caps, payouts, and conversions at separation from employment, similar to what is described in employee handbooks.

BAILEE STEINLE: From a procedures standpoint, we are seeing straightforward calculations, aided by GASB 16's prescriptive guidance. However, there are items related to GASB 101 that need to be outlined and are often missing from current policies.

DANNY MARTINEZ: That may surprise some listeners. What types of things are missing from current policies and procedures?

BAILEE STEINLE: The shift toward principles-based accounting under GASB 101 means standards are broader and require more subjective determinations. Entities must use judgment in their organizational context to apply the standards.

BAILEE STEINLE: Examples of new subjective determinations include when leave is more likely than not to be used and whether the liability is calculated using a LIFO or FIFO flows assumption. These items are new and the guidelines to make these determinations often do not appear in current policies.

DANNY MARTINEZ: Some aspects of implementation are mechanical, such as identifying compensated absences and posting journal entries, but the absence of clear policies and procedures requires deeper work. How does the team help when a policy item is missing, and can you give an example of a recommendation?

BAILEE STEINLE: Our approach is to provide recommendations tailored to a client's situation while integrating best practices for that type of entity. We leverage experience across governments of different sizes to inform our recommendations.

BAILEE STEINLE: We are flexible in our support. We can identify gaps and allow the client to draft policies, or we can provide structured, pre-worded policy recommendations that can be incorporated into existing policies.

BAILEE STEINLE: For example, many governments lack an explicit policy addressing the LIFO versus FIFO flows assumption. This assumption can significantly impact the final liability. When an explicit policy is absent, we review historical leave data to determine whether an implicit practice exists.

BAILEE STEINLE: If historical patterns indicate leave is drawn from the oldest hours earned, that suggests a FIFO policy. We then help draft policy language to explicitly document that assumption.

DANNY MARTINEZ: The FIFO versus LIFO assumption has generated significant discussion in governmental accounting circles. The GFOA's Government Finance Review highlights that FIFO versus LIFO can affect liability and cautions about the level of detail and evaluation required to make and document such a determination.

DANNY MARTINEZ: In your experience, why is it important to finalize processes, controls, and policies before preparing journal entries and disclosures?

BAILEE STEINLE: It boils down to accuracy and efficiency. Journal entries and disclosures are final outputs, and outputs are only as good as inputs. Defining policies and assumptions and building supporting processes and controls saves time and avoids issues later.

BAILEE STEINLE: This upfront work creates a system for compensated absences that addresses appropriate accounting and presentation, which is a better use of resources than diagnosing issues after the fact.

DANNY MARTINEZ: One final topic related to policies and procedures is the implementation memo. I previously worked on the audit side and AU-C 230 requires documentation. The implementation memo is the last part of phase three. Bailee, what is this memo and why is it required on our implementation engagements?

BAILEE STEINLE: The implementation memo documents all need-to-know items about your GASB 101 implementation and is tailored to the details of your engagement. It includes a description of GASB 101, the subjective determinations required, and the ways the pronouncement impacted your financial statements.

BAILEE STEINLE: The memo also describes critical procedures followed during implementation, such as identifying leave types and measuring the liability. It serves as a one-stop reference for implementation information.

BAILEE STEINLE: The memo is a required deliverable because it serves as a reference for the implementation team and the entity, and it supports communication with oversight committees. It also provides auditors with documentation of the steps taken during implementation.

DANNY MARTINEZ: Thank you, Bailee. We covered phase three and addressed policy, process, control, and documentation requirements. Your GASB experience has been valuable to our team and clients. To our listeners, we hope these episodes help you confirm your approach or identify items to add to your implementation.

DANNY MARTINEZ: We are signing people up for our four-phase GASB implementation solution. For information, email me at danny.martinez@cbh.com or message me on LinkedIn. We are also hosting a webinar, "The Seven Things You Must Know for a Successful GASB 101 Implementation," which offers one hour of free CPE in early April. Registration is available on the Cherry Bekaert website, and you can message Bailee or me for more information.

DANNY MARTINEZ: We will continue next time with phase four of implementation.

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