June 16, 2025 - State and local government finance officials across the country are navigating a significant accounting change with the implementation of GASB Statement No. 101, Compensated Absences (GASB 101). Effective for fiscal years beginning after December 15, 2023, this new standard introduces a unified model for accounting for compensated absences that will fundamentally alter how employee leave benefits are recognized, measured, and reported.

Understanding the New Requirements

GASB 101 requires government entities to recognize liabilities for both unused leave and leave that has been used but remains unpaid or unsettled at reporting dates. This represents an amendment to previous standards by creating a more comprehensive approach to leave liability recognition.

Liability recognition for leave that has not been used under the new standard require three key criteria to be met:

1. The leave must be attributable to services already rendered;
2. The leave must accumulate; and
3. The leave must be more likely than not to be used, paid in cash, or settled through noncash means.

This "more likely than not" threshold (probability greater than 50%) introduces a significant element of professional judgment into the accounting process. Finance officials must now assess historical patterns and make probability determinations for various types of leave benefits, including vacation, sick leave, paid time off (PTO), holidays, and unrestricted sabbaticals.

Special consideration should be given to holidays. If the holiday must be taken on a specific date and is not at the employee’s discretion, it should not be recognized as a liability until it is actually used. Only holidays that employees can take at their discretion (such as floating holidays) are considered for liability recognition prior to use, provided they meet the other recognition criteria. Special consideration should be given to the varying rules across employee groups and collective bargaining agreements, as these may affect how leave is accrued, used, or paid out. Leave that is more likely than not to be settled through conversion to defined benefit postemployment benefits should not be recognized as a liability for compensated absences.

GASB 101 brings a unified approach to accounting for compensated absences, requiring governments to consistently evaluate and report all types of leave liabilities. This comprehensive framework ensures that vacation, sick leave, PTO, holidays, and other leave benefits are recognized and measured using the same principles, leading to more transparent and comparable financial statements.

Implementation Strategy

A successful implementation strategy for GASB 101 requires a three-phased approach:

Phase 1: Policy Review and Documentation

The first step toward compliance involves conducting a thorough inventory and analysis of all leave policies across the organization. This includes:

• Identifying and documenting all types of leave benefits offered
• Reviewing collective bargaining agreements for specialized provisions
• Documenting maximum accrual limits and carryover provisions
• Analyzing payout provisions upon termination or retirement

Through this process, many government entities have discovered that they offer more leave benefits than initially realized, especially when considering special provisions for different employee groups, bargaining units, or departments.

Phase 2: Data Collection and Analysis

Once policies are fully documented, entities should focus on gathering historical data to inform probability assessments:

• Extract multiple years of leave usage data from payroll systems
• Analyze utilization patterns by employee group and leave type
• Calculate average utilization rates and identify trends
• Document termination payout history
• Establish baseline assumptions for the "more likely than not" threshold

This analysis forms the foundation for liability recognition decisions and should be thoroughly documented for audit purposes. Your auditor will likely determine the adoption of GASB 101 to be a higher risk item, requiring more convincing audit evidence.

Phase 3: System and Process Updates

With policies understood and data analyzed, attention must turn to operational aspects:

• Update financial systems to accommodate new liability calculations
• Revise chart of accounts to properly segment leave types
• Develop new processes for ongoing tracking and reporting
• Create documentation templates for key assumptions
• Establish regular review procedures for probability assessments

Financial Statement Impact

GASB 101 will likely increase liabilities that are reported on an economic resources’ measurement focus for many governments, particularly those with generous leave policies or significant accumulated balances.

The standard requires specific disclosures in financial statements:

• Segregation of short-term and long-term portions of compensated absence liabilities
• Disclosure of increases and decreases in compensated absence liabilities during the reporting period, either presented separately or as a net increase or decrease. If a net amount is presented, clearly indicate that it is a net amount.
• Description of significant changes to compensated absence policies
• Explanation of material adjustments to beginning balances upon implementation

Finance directors should prepare to explain these changes to governing boards and other stakeholders who may question the increased liabilities on financial statements.

Audit Readiness

As with any new standard, additional scrutiny and time will be focused on GASB 101 implementation with particular attention to documentation and methodology. Auditors will expect comprehensive documentation of implementation decisions, including the rationale behind probability assessments and the systems used to track leave balances.

Government entities should prepare:

• Comprehensive policy inventory with supporting documentation
• Evidence supporting probability determinations, including historical data analysis
• Clear explanation of calculation methodologies
• Verification of data integrity and leave balance accuracy
• Complete financial statement disclosures

Looking Ahead: Ongoing Compliance

Implementation of GASB 101 is not a one-time event but requires ongoing attention to:

• Regular reviews of probability assessments based on updated data
• Monitoring of policy changes that may affect liability recognition
• Staff training to ensure consistent application of the standard
• Documentation updates as circumstances change

By approaching GASB 101 implementation strategically with thorough policy analysis, robust data collection, careful probability assessments, and comprehensive documentation, government entities can ensure not only compliance with the new standard, but more transparent financial reporting that reflects their true obligations.

How Can Citrin Cooperman Help

Citrin Cooperman’s not-for-profit and governmental professionals are available to discuss and assist in understanding this new standard and the impact it may have to your entity. The key to success lies in starting early, involving stakeholders from both finance and human resources, and establishing sustainable processes that will support ongoing compliance long after the initial implementation. With proper planning and execution, governmental entities can navigate this transition effectively while maintaining stakeholder confidence in their financial reporting practices. Please reach out to any of our governmental professionals for further conversation on how we can help you navigate this changing standard.