GASB to fix gov’t reporting for compensated absences

Accounting

The Governmental Accounting Standards Board is looking for feedback on a proposal to improve the guidance on compensated absences for state and local government employees, along with disclosure requirements.

The proposed standard would supersede the recognition and measurement guidance issued by GASB back in 1992 in Statement No. 16, Accounting for Compensated Absences. The proposal is in line with GASB’s goal of periodically reexamining its older standards to make sure they remain effective.

The proposal comes at a time when many states and local governments have been burdened by the COVID-19 pandemic, which has prompted budget cuts and shifted priorities across the country to deal with urgent public health, safety and education needs, among others. At the same time, ill health and demands from family members such as children learning from home have forced many government employees to take off time due to the pandemic.

GASB headquarters in Norwalk, Connecticut

Courtesy of GASB

There are other considerations as well. “State and local governments often provide paid leave benefits to their employees, such as vacation leave and sick leave,” said GASB. “Some benefits have evolved such as with the use of a paid time off (PTO) model that may have characteristics of both vacation and sick leave. The Exposure Draft, Compensated Absences, proposes to align recognition and measurement guidance for all types of compensated absences under a unified model.”

GASB’s exposure draft explains some of the circumstances under which state and local governments would need to recognize a liability for compensated absences and proposes guidance for measuring such a liability. The general approach it would take for measurement would be accumulated leave, multiplied by an employee’s pay rate as of the financial reporting date.

The model proposed by GASB would lead to governments recognizing a liability that more appropriately reflects when they incur an obligation for compensated absences. GASB contends the model also would result in more consistency in application and better comparability across governments.

The proposal would amend some disclosures that are currently required. For instance, the proposed standard would offer an alternative to the current requirement to disclose the gross increases and decreases in a compensated absences liability, so state and local governments would get an option to disclose only the net change in the liability.

GASB is asking for feedback on the proposal by June 4, 2021. More information can be found in the exposure draft.

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