GASB Statement No. 101: An Overview and Practical Implementation Guidance

GASB Statement No. 101, Compensated Absences, replaces GASB Statement No. 16 and introduces a unified recognition and measurement model for employee leave. The new guidance requires governments to reassess how and when liabilities for compensated absences are recognized, particularly for sick leave and other benefits that historically were accrued on a limited or contingent basis.

The Basics of GASB 101

Under GASB 101, a liability must be recognized in financial statements prepared using the economic resources measurement focus when leave:

• Is attributable to services already rendered;
• Accumulates for use in future periods; and,
• Is more likely than not (greater than 50% chance) to be used for time off or otherwise paid or settled.

This framework applies to vacation leave, sick leave, paid time off (PTO) and similar benefits. It’s also subject to specific cost-benefit exceptions for certain types of leave, such as parental leave, military leave, jury duty leave, unlimited leave and holidays taken on fixed dates.

One of the most significant changes under GASB 101 is the treatment of sick leave. Even when unused sick leave is forfeited at termination, a liability may be required if historical experience indicates that a portion of accumulated balances is more likely than not to be used during employment.

Compensated absences liabilities are measured using pay rates and applicable salary-related payment rates in effect at the end of the reporting period. Salary-related payments generally include the employer’s share of Social Security, Medicare and defined contribution pension or OPEB contributions. Defined benefit pension and OPEB costs are excluded to avoid double counting.

GASB 101 does not change the recognition model for compensated absences in governmental fund financial statements. As a result, the most significant impacts will be reflected in government-wide and proprietary fund statements.

Section II: Implementation Considerations Under GASB Statement No. 101

Successful implementation of GASB 101 depends less on mechanical calculations and more on the development and documentation of reasonable estimates and assumptions. The standard is intentionally principle based and does not require governments to determine a precise amount.

Estimates and Professional Judgment

At its core, GASB 101 requires governments to estimate the portion of accumulated leave that is more likely to be used or settled. This estimate typically relies on historical usage patterns, employment policies, workforce characteristics and expectations about future behavior. The objective is not exactitude but a reasonable, supportable estimate that faithfully represents the government’s obligation.

Consistency in methodology and clear documentation of assumptions are critical, particularly when historical data must be interpreted or adjusted to reflect current conditions.

Flow Assumptions and the Role of LIFO

GASB 101 does not prescribe a required flow assumption for determining how leave is consumed or how amounts due within one year are estimated. Governments may apply FIFO, LIFO or no explicit flow assumption, provided the approach is reasonable and consistently applied.

In many cases, a LIFO methodology better reflects how employees actually use leave, consuming current-period leave before older accumulated balances. When applied thoughtfully, LIFO can:

• Better align leave expense with the period in which leave is earned and used;
• Reduce volatility caused by attributing current usage to older leave balances; and,
• Limit unnecessary remeasurement of prior-period balances when pay rates or contribution rates change.

Avoiding False Precision

Compensated absences liabilities under GASB 101 are estimates without defined payment schedules. Overly complex models can imply a level of precision that does not exist. A simpler approach, grounded in reasonable assumptions and applied consistently (such as a defensible estimate of leave expected to be used combined with a LIFO methodology) often provides more useful information for decision-making.

Documentation and Transparency

Although GASB 101 does not require disclosure of specific assumptions or methodologies, many governments elect to describe their approach in the summary of significant accounting policies. Clear documentation and transparency help support auditability, improve understandability and provide context for year-over-year changes in the compensated absences liability.

As you prepare to implement GASB 101, thoughtful judgment, clear documentation and practical methodologies will be essential to achieving compliant and decision-useful results. Our firm’s Government Services team works closely with local governments like yours. Together we can evaluate policies, develop reasonable estimates and support implementation in a way that withstands audit scrutiny while avoiding unnecessary complexity.

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