Magazine article The CPA Journal

Exposure Draft on Compensated Absences and GASB Priority Projects

Magazine article The CPA Journal

Exposure Draft on Compensated Absences and GASB Priority Projects

Article excerpt

In December 1991, the GASB issued an Exposure Draft (ED) of a proposed statement on accounting for compensated absences. The proposed statement would make some significant changes from the SFAS 43-based standard currently followed by governments, particularly in the treatment of sick leave benefits. The current standard (CASE Codification Sec. C680) requires that employers accrue a liability for sacation, sick, and other leave benefits that meet all the following conditions:

* The employers obligation is attributable to service already rendered;

* The obligation relates to rights that eventually vest or accumulate;

* Payment is probable; and

* The amount can be reasonably estimated.

The proposed standard would apply to all state and local government entities including public benefit corporations and authorities, public employee retirement systems, governmental utilities, governmental hospitals and healthcare providers, and governmental colleges and universities. Unlike the current standard, the ED distinguishes between vacation (and other compensated absences) and sick leave.

Vacation leave would be accrued as a liability when earned if both the following conditions are met:

* The employees rights to receive compensation are attributable to services already rendered; and

* It is probable that compensation will be made through paid time off or other means such as cash payment at termination or retirement.

Sick leave would be accrued when earned by employees if it is probable that the employer will compensate the employees through cash payments conditioned on termination or retirement. Note that sick leave liability is not accrued when the compensation is for absences due to illness. Distinction between payments for absences due to illness and payments for sick leave at the time of termination or retirement is a major difference from current standard.

In addition, the ED does not eliminate the need to make an accrual for either type of leave based on inability to estimate the liability. Instead, the ED provides two alternatives for estimating sick leave accrual and illustrates methods for estimating both vacation and sick leave accruals in the appendices.

The ED requires the liability calculation to be based on current pay rates or other rates specifically required to be used for paying compensated absences. In addition, amounts for "salary-related" payments associated with payment of compensated absences should be accrued. …

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