GASB No. 101 Compensated Absences

As you feverishly run leave reports to calculate your compensated absences liability, please be aware that the Governmental Accounting Standards Board (GASB) and the Government Finance Officers Association expect governments to disclose their flows assumption for compensated absences—that’s right, the Last-In-First-Out (LIFO) or First-In-First-Out (FIFO) concepts don’t just apply to your inventory usage. 

Here is how it works – your data will tell the story – follow the data. LIFO assumes that an employee is using leave earned in the current year first, whereas, FIFO assumes the employee uses leave accumulated in prior years first.  When the data supports a LIFO flows assumption, the more likely than not (MLTN) percentage may be zero percent and will result in $0 liability. Yes, that’s right—zero!

When FIFO is assumed, the MLTN percentage will be greater than 0 percent and will be applied your leave balance in calculating the liability.

State leave earned and usage data is shown below: 

The table above illustrates a LIFO flows assumption where employees use less State leave than they earn and the balances increase from one year to the next. For a FIFO flows assumption, the leave amounts used are more than the leave amounts earned and balances would decrease. 

GASB Statement No. 101 does not require any particular flows assumption but it’s important to review the data, your policies and any other information. The GFOA Blue Book’s example illustrates FIFO but remember there are many ways to calculate your estimate. 

A few more reminders: your total liability is the sum of: 

• Leave more likely than not to be used as time off,
• Leave to be used, and
• Employer’s share of payroll taxes, such as Social Security and Medicare (where applicable)

Please reach out to your Whitley Penn advisor for more help. We are ready to conquer this standard with you.