GASB 101 Now in Effect for Fiscal Years Ending June 30, 2025

GASB Statement No. 101, Compensated Absences, is effective for fiscal years ending June 30, 2025, and will be subject to audit. This new standard introduces a single model for accounting for compensated absences and requires retroactive implementation, meaning all prior periods presented must be restated.

The standard involves significant estimation and varies by employee group depending on individual policies. Below are key questions to help guide your implementation:

• Multiple Employee Groups: If there are multiple employee groups (such as collective bargaining agreements), has special consideration been given to each group’s compensated absence policies?
• Salary-Related Payments: Have salary-related payments been included in the accrual? Consider whether these would be paid when time is used or paid out.
  • Examples include the employer’s share of FICA and the employer’s share of the defined contribution pension, and whether these are applied only when used or paid out at termination, based on the policy.
• Likelihood of Use or Payout: Has the appropriate effort been put into the estimation of whether the balance is more likely than not to be paid, used, or settled (more likely than not is defined as more than a 50% likelihood)?
  • Consider that an employee’s accrual may be more than the amount paid upon retirement.
  • Consider historical trends. Maintain the documentation and information used to determine the estimation for your auditors.
• Year-End Pay Rates: Was the calculation performed using the pay rates in effect at the end of the year?
• Current Portion of Liability: Was the appropriate consideration put into the estimated amount due within one year?
• Restating Net Position: Has the restated beginning net position balance been calculated, considering all aspects above?
  • The standard must be implemented retroactively by restating all prior periods presented.
• Earned Sick Time Act: Does the calculation take the Michigan Earned Sick Time Act into consideration?
• Flow Assumptions: Has consideration been given to which flow assumption is utilized in calculating the liability?
  • Flow assumptions: FIFO (first-in, first-out) or LIFO (last-in, first-out).
  • For example, if an employee has 100 hours banked as of the end of the year, earns 10 hours, and uses 15 hours in the first month of the new year, from which “bucket” of hours are those first 10 hours used, and assumed to come out of? If it is the 100 that were previously available, this would be a FIFO assumption; if the newly earned 10 hours were used first, this would be the LIFO assumption.

Yeo & Yeo suggests the following steps to get started on implementing GASB 101:

1. Consider whether the Michigan Earned Sick Time Act affects your calculation.
2. Begin with the prior year’s compensated absence schedule (see step #6) to restate the net position.
3. Accumulate trend history for payouts vs. usage (3-year averages, 5-year averages, or more, based on whatever makes sense) by employee group. Watch out for outliers such as months of excessive time off due to COVID-19.
4. Segregate employee groups based on the varying policies/contracts and consider what flow assumption is in place (first-in, first-out or last-in, first-out).
5. Set up formulas to calculate each employee group, using rates in effect at the end of the year, estimated payouts, estimated usage, and salary-related payments. Calculate what the liability would have been as of the end of the prior fiscal year.
6. A journal entry to restate the beginning net position will need to be posted. To do this, adjust the compensated absence balance to your newly calculated amount as of the beginning of the year, which could be either a debit or credit, and then the opposing debit or credit will be to the net position. Your auditor can assist with this; however, they will need the newly calculated beginning balance. 
7. Now that you’ve formulated it for the prior fiscal period, apply the same procedures to the current year’s schedule and post the necessary adjustment.

If you need assistance or have questions, please contact your auditor or a member of Yeo & Yeo’s Education Services Group.