Navigating GASB 101: Compensated Absences

CHRISTIAN FJELGRAVE: Welcome, thanks for listening to Cherry Bekaert's Government and Public Sector Podcast Series. In each episode, we hear from the best in the business on the latest challenges, trends, and opportunities affecting the government and public sector. I'm Christian Fjelgrave, leader of Cherry Bekaert's Government and Public Sector Industry Team.

DANNY MARTINEZ: Hello everyone, and thank you for joining Scott and me as we continue to tackle new GASB accounting pronouncements. We have another special guest joining us today to cover GASB 101. Once again, my name is Danny Martinez, and I lead Cherry Bekaert's National Government and Public Sector Accounting Advisory Group.

DANNY MARTINEZ: We provide government accounting assistance in a variety of ways to help government accounting and finance departments move from always working on urgent tasks to working on the more important tasks for their constituents. Scott, will you please reintroduce yourself?

SCOTT ANDERSON: Sure. My name is Scott Anderson, and I have been with Cherry Bekaert since it was Cherry Bekaert in Holland, almost 19 years now. I spent most of my career in the government and public sector practice. I'm currently based in Raleigh, spent some time in our Tampa office, and spent some time up in Connecticut at the GASB as a practice fellow. I'm happy to be back serving clients and helping them implement new accounting pronouncements.

DANNY MARTINEZ: Thank you. Our special guest, Anthony Walsh, is out of our Tampa office. Thank you for joining. Will you please introduce yourself?

ANTHONY WALSH: Sure. I'm Anthony Walsh. I'm based in our Central Florida practice and work exclusively with government sector clients in the audit and assurance service line.

DANNY MARTINEZ: As I mentioned up top, we're going to be covering GASB 101 today. Anthony, can you kick us off with what GASB 101 is and when it's effective?

ANTHONY WALSH: GASB 101 deals with compensated absences. It updates guidance from 1992, GASB 16, which introduced the concept of compensated absences. The goal is to align the treatment of paid leave benefits for employees across different governmental entities. It is effective for fiscal years starting after December 15, 2023, and the GASB encourages early adoption.

DANNY MARTINEZ: Scott, can you give us the definition of a compensated absence?

SCOTT ANDERSON: Compensated absence is an accounting term; it's not new. GASB 16 provided a simple definition: an absence for which an employee will be paid, such as vacation, sick, or sabbatical. GASB 101 also provides a definition that is simultaneously more specific and less specific. It's more specific in the manner in which employees are paid, but less specific in that it doesn't identify different types of leave.

SCOTT ANDERSON: GASB 101 acknowledges that employees are not simply paid when they are absent; sometimes they are paid for not using the absence, and sometimes the payment is a non-cash settlement into a post-employment plan. The definition reflects an employment environment more complex than what existed in the early 1990s.

DANNY MARTINEZ: As you mentioned, the types of leave and compensated absences that governments offer have changed. On the advisory side, when we're working through implementation, we build an implementation roadmap. One of the first steps is understanding the entirety of what we're dealing with to ensure completeness of all the benefits a government employer could be giving.

DANNY MARTINEZ: Anthony, can you give us some types of compensated absences that are common in government?

ANTHONY WALSH: Vacation and sick leave have been the dominant forms for a long time. In the last decade I've seen those morph into other structures, such as a single paid time off bank that combines vacation and sick leave. GASB 101's definition includes holidays, parental leave, sabbaticals, and military leave.

ANTHONY WALSH: One interesting example I've seen in Florida is paid birthdays; some smaller municipalities offer a birthday day off to employees, and many employees cash that out. That is still something that must be included in the calculation annually because everyone has a birthday every year.

DANNY MARTINEZ: In large metropolitan governments, you may find more creative benefit packages with different types of leave. Scott, after we gather everything being offered, can you explain what that means for the accounting treatment of different types of leave?

SCOTT ANDERSON: I like to compare this with the old guidance; it helps in understanding implementation. GASB 16 was rules-based, which made sense when there were only a few types of leave. If you had vacation, you accounted for it one way; sick leave another way; sabbatical another way. As leave options expanded, it became necessary to move to a principle-based approach, which is what GASB 101 provides.

SCOTT ANDERSON: There are three recognition criteria to determine how to account for or measure the leave. First, the leave is attributable to services already rendered; services are provided by an employee, and the compensated absence is part of that compensation. Second, the leave accumulates and is available to be used beyond the financial reporting period. Third, it is more likely than not that the leave will be used for time off, paid out, or settled through non-cash means. A probability assessment must be performed to determine if it's recognizable as a liability.

DANNY MARTINEZ: You didn't mention vesting as a criterion. Governments used to evaluate vesting. How is the evaluation and recognition different in GASB 101 compared to thinking about vesting?

SCOTT ANDERSON: The major change is vesting. Under GASB 16, if sick leave did not vest—meaning it was not paid out upon separation of service—you never accrued it. In GASB 101, vesting is not a recognition criterion, but it remains a consideration. Just because an employee could lose time when they quit or are terminated does not mean it's not a liability as of year-end.

SCOTT ANDERSON: Concept Statement 4 defines a liability as a present obligation to sacrifice resources. If the leave accumulates beyond the fiscal year and the employee can use it in the future, you would record it as a liability based on the more likely than not threshold. Vesting is a factor in determining more likely than not, but it is not a recognition criterion in itself.

DANNY MARTINEZ: Anthony, Scott mentioned more likely than not. Many government listeners have been using terms like reasonable certainty with GASB 87 and GASB 96. Can you discuss the different probability terms the GASB uses and how more likely than not compares to reasonable certainty?

ANTHONY WALSH: The authoritative literature provides several terms for degrees of likelihood, from least likely to most likely: remote, reasonably possible, more likely than not, probable, and reasonably certain. More likely than not means greater than a 50% chance of happening. Reasonably certain implies a very high likelihood that something will occur. The terms are somewhat vague, but they give governments flexibility in recognition versus waiting until an event has already occurred to record a liability.

DANNY MARTINEZ: One way people describe more likely than not is "50% and a feather"—just tipping over the 50% threshold. Scott, what type of impact do you see this having on governments?

SCOTT ANDERSON: Some governments may see no impact, particularly those with policies that already pay out sick leave. Although GASB 101 is principles-based, it follows much of what GASB 16 said. It wasn't intended to create massive change. Governments will see an impact when they have non-vested sick leave policies. The reason vesting was a criterion in GASB 16 was concern that records had not been maintained; that concern was resolved in deliberations for GASB 101. Governments should have the information they need.

SCOTT ANDERSON: This is not intended to be a large lift other than performing the probability assessment; it now requires the amount to be accrued. I've seen many disclosures of non-vested sick leave where the disclosure included the amount but it was not reported as a liability; now it must be reported. Some governments will have work to do to reflect this on their financial statements, but for many it will not be a huge lift.

DANNY MARTINEZ: With all implementations, the first year involves time to understand what you have. I heard a GASB presentation from Alan Skeleton, and he said the areas with the biggest potential financial statement impact are sick and sabbatical leave.

DANNY MARTINEZ: We like to end these podcasts asking our guests for a one takeaway. Anthony, can you give us one takeaway related to GASB 101?

ANTHONY WALSH: One takeaway is that GASB 101 reduces some disclosure burden. You no longer have to report gross annual increases and decreases; you can report the net annual change in the liability. That simplification is a positive aspect of implementing the standard.

SCOTT ANDERSON: My takeaway is similar. If anyone needed evidence of how much the GASB cares about preparers and wanted to make life easier, GASB 101 helps with disclosures. It is principle-based, but for tricky scenarios where inconsistent answers might arise—such as unlimited leave or holiday pay—the GASB provides exceptions. In those scenarios, the guidance specifies that you should not record the liability until the leave commences or is used. That direction is helpful for applying the standard to difficult types of leave.

DANNY MARTINEZ: A final takeaway is that you don't have to go through implementation alone. Our Government and Public Sector Accounting Advisory Group has spent significant time thinking about how to implement GASB 101, and we'd be happy to assist any government.

DANNY MARTINEZ: Thank you, Scott and Anthony, for your time today.

SCOTT ANDERSON: Thank you.

ANTHONY WALSH: Thank you.

CHRISTIAN FJELGRAVE: You can find our podcast on GASB 100; it should be right before this on your feed, wherever you get your podcasts. You can also find an article and webinars on GASB 100 and GASB 101 on Cherry Bekaert's website. We should have a podcast coming out on GASB 102 in the near future.

CHRISTIAN FJELGRAVE: If you have any questions related to our GASB accounting advisory assistance and how we can help, you can email Danny at danny.martinez@cbh.com, Scott at scott.anderson@cbh.com, and Anthony for audit needs at anthony.walsh@cbh.com. Don't forget to subscribe.