The Governmental Accounting Standards Board (GASB) recently issued an Exposure Draft, Compensated Absences, to align the recognition and measurement guidance for all types of compensated absences (e.g., vacation, sick leave, paid time off) under a unified model. This proposed Statement would require a liability for compensated absences to be recognized if:
- The absences accumulate (i.e., can be carried forward from the reporting period in which earned to a future reporting period when they will be paid or settled);
- The absences are attributable to services rendered (i.e., those for which an employee already has performed the services required to earn the payment or settlement); and
- The absences are more likely than not to be either paid (including being paid for use) or settled through other means.
The proposed Statement also would establish measurement guidance, which generally would require accumulated leave to be multiplied by an employee’s pay rate as of the financial reporting date. Certain salary-related payments (e.g., the employer share of Social Security and Medicare taxes) that are both directly and incrementally associated with payments for compensated absences also would be included in the measurement of the liability.
Further, the proposal would provide an exception to the existing requirement to disclose the gross increases and decreases in a compensated absences liability such that governments would be allowed to disclose only the net change in the liability. In addition, governments would not be required to disclose which governmental funds typically have been used to liquidate the compensated absences liability.
If finalized, the requirements would be effective for reporting periods beginning after December 15, 2022. The Exposure Draft is available for comment until June 4, 2021.