Summaries / Status
Summary of Statement No. 16
Accounting for Compensated Absences
This Statement provides guidance for the measurement of accrued compensated absences liabilities by state and local governmental entities, regardless of the reporting model or fund type used to report the transactions. Compensated absences are absences for which employees will be paid, such as vacation, sick leave, and sabbatical leave.
The standards in this Statement give consideration to the different characteristics of various types of compensated absences. For example, employees usually receive full compensation for vacation leave-either as paid time off or as compensation at termination or retirement. Thus, employees earn the right to be compensated for vacation leave based only on rendering past service. On the other hand, paid time off for earned sick leave is contingent on an illness-a specific event that is outside the control of the employer and employee. In some cases, however, employees may be compensated for a portion of their sick leave when they terminate or retire. In those cases, employees earn the right to be compensated for sick leave at termination based only on rendering past service.
Vacation leave and other compensated absences with similar characteristics should be accrued as a liability as the benefits are earned by the employees if the leave is attributable to past service and it is probable that the employer will compensate the employees for the benefits through paid time off or some other means, such as cash payments at termination or retirement.
Sick leave and other compensated absences with similar characteristics should be accrued as a liability as the benefits are earned by the employees but only to the extent it is probable that the employer will compensate the employees for the benefits through cash payments conditioned on the employees' termination or retirement ("termination payments"). Alternatively, the liability should be measured based on the sick leave and other compensated absences with similar characteristics accumulated at the balance sheet date by those employees who currently are eligible to receive termination payments as well as other employees who are expected to become eligible in the future to receive such payments. When the liability is calculated, these accumulations should be reduced to the maximum amount allowed as a termination payment.
This Statement requires the compensated absences liability generally to be measured using the pay or salary rates in effect at the balance sheet date. It also requires additional amounts to be accrued for certain salary-related payments associated with the payment of compensated absences, for example, the employer's share of social security and medicare taxes.
The provisions of this Statement are effective for financial statements for periods beginning after June 15, 1993. However, for governmental and similar trust funds, only the current portion of the liability should be reported in the funds; the remainder of the liability should be reported in the General Long-Term Debt Account Group (GLTDAG) and compensated absences expenditures should be recognized using a modified accrual basis of accounting. The provisions of this Statement are effective for recognizing governmental and similar trust fund expenditures using an accrual basis of accounting when GASB Statement No. 11, Measurement Focus and Basis of Accounting-Governmental Fund Operating Statements, becomes effective.
Unless otherwise specified, pronouncements of the GASB apply to financial reports of all state and local governmental entities, including public benefit corporations and authorities, public employee retirement systems, governmental utilities, governmental hospitals and other healthcare providers, and governmental colleges and universities. Paragraph 5 discusses the applicability of this Statement.