Navigating GASB 101: Compensated Absences Simplified

Summary

School Business Insider: Navigating GASB 101: Compensated Absences Simplified

Release Date: January 7, 2025

In this insightful episode of School Business Insider, host John Brucato delves into the intricacies of the newly introduced GASB Statement 101, which redefines the accounting for compensated absences within school districts. Joined by Melissa Zott and Jeff Shaver, both partners at PKF O'Connor Davies, the discussion provides a comprehensive breakdown of the standard, its implications, and actionable strategies for school business officials.

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1. Understanding GASB 101

John Brucato opens the conversation by highlighting the significance of GASB 101 for school finance leaders, emphasizing the need for consistency and alignment with financial statement users' needs.

"GASB 101 redefines how compensated absences are accounted for, focusing on consistency, relevance, and better alignment with financial statement users needs."
— John Brucato [00:01]

Jeff Shaver elaborates on the purpose behind the new standard, noting that GASB 101 updates and clarifies previous standards to better fit the current conceptual framework.

"The GASB wanted to align the current standards with their conceptual framework, specifically as it relates to the definition of a liability..."
— Jeff Shaver [02:52]

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2. Transition from GASB 16 to GASB 101

The podcast contrasts the old GASB 16 with the new GASB 101, explaining the significant changes and the phasing out of the former.

"16 is now superseded. So 101 essentially replaces 16 at this point."
— Melissa Zott [04:16]

Key differences include the removal of vesting factors and maximum caps on compensated absences, shifting the focus to the utilization and payout of accrued benefits.

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3. Impact on School Districts

Jeff Shaver clarifies that GASB 101 primarily affects the government-wide financial statements or district-wide financial statements, with minimal impact on governmental funds like the general fund.

"Most districts will see increases in their compensated absences liabilities as a result of this."
— Jeff Shaver [06:30]

Melissa Zott adds that while the foundational calculations remain similar, GASB 101 introduces a more nuanced "more likely than not" judgment, requiring districts to reassess their liability estimations.

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4. Implementation Challenges

Implementing GASB 101 presents several challenges, particularly in its first year. Jeff Shaver points out the variability across school districts due to differing collective bargaining agreements, making a one-size-fits-all approach unfeasible.

"Each district has its own collective bargaining agreements. So this could look different for every single school district."
— Jeff Shaver [09:47]

Melissa emphasizes the importance of a thorough review of existing agreements and the need for a "more likely than not" analysis based on historical data.

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5. Deciphering "More Likely Than Not"

A critical component of GASB 101 is the definition of "more likely than not," now quantified as a greater than 50% probability of compensated absences being utilized or paid out.

"GASB defined more likely than not being at least more than 50% chance of happening."
— Melissa Zott [07:34]

This quantification aids districts in making informed judgments, reducing ambiguity in liability estimations.

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6. Practical Scenarios and Examples

The episode explores practical scenarios to illustrate the application of GASB 101:

• Carryover Vacation Days: If an employee can carry over half of their vacation days, districts generally need to accrue liabilities for those days unless there's a high probability they won't be used.

  "Generally you'd have to accrue for those carryover vacation days as the services have already been rendered by the employee."
  — Jeff Shaver [17:51]

• Conversion of Sick Days to Health Insurance: Sodays convertible to health insurance upon retirement are treated similarly to regular sick leave in liability calculations.

  "GASB101 has this kind of falling under the regular sick leave..."
  — Melissa Zott [23:59]

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7. Measurement and Reporting

Calculating the appropriate pay rate for liability assessments is straightforward; districts must use the employee rate as of the balance sheet date.

"It's the rate at the balance sheet date. So whatever the employee rate is June 30, 2025, that's what you need to use."
— Jeff Shaver [25:51]

Melissa notes some confusion around pay rates tied to upcoming raises but confirms the requirement to use the current rate.

"We are reporting as of the balance sheet date. So June 30th and that's really what the number that we have to use."
— Melissa Zott [26:17]

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8. Best Practices for Preparation

To effectively prepare for GASB 101, Melissa Zott recommends:

1. Review Collective Bargaining Agreements: Understand the specific benefits and terms offered to various employee groups.
2. Initiate Early Calculations: Begin the "more likely than not" analysis promptly to avoid end-of-year rush.
3. Collaborate with HR Departments: Ensure accurate data on absence patterns and accruals is readily available.

"Start fresh, get a good understanding of what benefits are offered to the different groups of employees, write those down, then move on to your more likely than not analysis."
— Melissa Zott [33:00]

Jeff Shaver underscores the importance of representative sampling and aligning sample sizes with AICPA guidelines to substantiate estimates.

"If you have less than 250 employees, you can use 10% of your population. If you have over 250 employees, then I would suggest using 25 just as a flat number."
— Melissa Zott [30:13]

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9. Communicating Changes to Stakeholders

Effectively conveying the implications of GASB 101 to audit committees, boards of education, and community members is crucial. Jeff Shaver suggests simplifying the explanation to highlight that the changes are accounting-based and do not necessarily alter the payout amounts.

"It doesn't mean that we'll be paying out more. It doesn't mean we'll be paying out any less. It just means the way we're accounting for them and presenting them has to change."
— Jeff Shaver [34:34]

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10. Looking Ahead

As GASB continues to evolve, with new standards on the horizon, districts are encouraged to stay proactive. Melissa Zott advises starting preparations early and utilizing available resources, such as webinars and publications from professional organizations.

"The earlier you start, the less you have to rush around towards the end."
— Melissa Zott [35:48]

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Conclusion

John Brucato wraps up the episode by acknowledging the ongoing nature of GASB's updates and expressing appreciation for Melissa and Jeff's expertise. Listeners are left with a clear understanding of GASB 101's requirements and the proactive steps necessary for smooth implementation.

"I'm sure this won't be the last time I have you on School Business Insider."
— John Brucato [36:24]

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Key Takeaways:

• GASB 101 supersedes GASB 16, introducing a more precise method for accounting for compensated absences.
• The standard primarily affects government-wide financial statements, with most school districts anticipating an increase in reported liabilities.
• Implementation requires meticulous review of collective bargaining agreements and a thorough "more likely than not" analysis based on historical data.
• Early preparation, representative sampling, and effective stakeholder communication are essential for compliance and transparency.

For school business officials navigating these changes, embracing GASB 101 with a strategic and informed approach will ensure accurate financial reporting and sustained fiscal health for their districts.

Transcript

[John Brucato]

You're listening to ASBO International's School Business Insider. I'm your host, John Brucato. Each week on School Business Insider, I sit down with school business officials and industry experts from around the world to share their stories and explore the topics that matter most to you. Find out what it means to be a school business official and get your insider pass on all things school business. Hello everyone, and welcome back to School Business Insider. Today we're diving into an important and timely topic for school finance leaders, GASB Statement 101. This new standard redefines how compensated absences are accounted for, focusing on consistency, relevance, and better alignment with financial statement users needs. With the implementation date fast approaching, understanding its nuances is crucial for school districts. Joining us are two experts from PKF, O'Connor Davies, Melissa Zott and Jeffrey Shaver, both partners at the firm. Together they'll unpack GASB101, discuss key implementation challenges, and share actionable insights for school business officials navigating these changes. Melissa and Jeff, welcome to the podcast. I'm so happy to have you both.

[Melissa Zott]

Thank you. Thanks for having us.

[John Brucato]

Absolutely. So, before we jump into what is going to be an exciting conversation around GASB101, maybe you can just enlighten our listeners and give them a little bit of your background. Melissa, why don't we start with you?

[Melissa Zott]

Great. Sure. So I'm a partner with PKF O'Connor Davies. I have about 17 years experience with public sector audits. Eight years of that actually in California and then the rest in New York. I'm part of the New York State Society of cpa, the Public Schools group, and then the Governmental Accounting group. Great.

[John Brucato]

Well, welcome Jeff.

[Jeff Shaver]

Oh, so my name is Jeff Shaver. I'm also a partner with PKF O'Connor Davies. Unlike Melissa, I've spent my entire career here with the firm. Just about 21 years. I started as a as like a staff accountant and I've kind of been working my way up and made it to partner back in 2016. I work almost exclusively on local government, school districts and that sort of thing. And that's kind of what I do here.

[John Brucato]

Great, Great. Well, like I said, happy to have both of you on and really share some insights on 101. I mean, I know all business officials want more GASB, so I'm glad we get to introduce another one. So with that being said, can you just maybe give us an over view of what GASB 101 is and maybe why you feel it was introduced for public schools and municipalities sure.

[Jeff Shaver]

So I think the gasb, the Governmental Accounting Standards Board, who is the standard setter, is kind of on a little bit of a mission, if you will, to revisit some old standards and possibly clarify or change things that they think are not up to date or not in current alignment with their conceptual framework. And I think 101 uncompensated absences kind of fits into that category. There was an old standard that was issued probably before my time, GASB number 16, and this is kind of an update on that. So the concepts really haven't changed. We're all familiar, I think, with compensated absences, but they just wanted to. The GASB wanted to align the current standards with their conceptual framework, specifically as it relates to the definition of a liability, and also eliminate inconsistencies that they found in their research work among different municipalities throughout the states.

[John Brucato]

So you mentioned 16. Can you talk to me about the major changes between 101 and 16? Does 16 completely go away and does this take over? Is it kind of layered on top? What is. What are those two, both the differences between one on one and 16 and what happens with 16?

[Melissa Zott]

So 16 is now superseded. So one on one essentially replaces 16 at this point. The major changes that we've seen is with 16 you have like a vesting piece that you had a factor in as well as any maximums that maybe your contracts have capped out. So those are now removed at this point with 101. And it's really looking at what pay, what time can be used or what cash can be paid out and then factoring in this more likely than not calculation as well.

[John Brucato]

Got it. So I know both of you locally. For us in New York, you held a webinar fairly recently. I didn't have an opportunity to attend. But a missed after. Yeah, yeah, I was kicking myself. I'm like, I really wanted to have a good time, so. But one of my, one of my staff attended and she kind of walked out of her office with her head spinning and I was like, oh boy. Like that. It sounds like a pretty significant change. So can you tell me about what this update to 101 means for school districts and other public entities?

[Jeff Shaver]

So I'll start off by saying the change only relates to what we refer to as the government wide financial statements or the district wide financial statements. So it's only those or sometimes we just refer to it as the GASB 34 statement outside of your general fund. So I think the first key point is there's no impact here to your Governmental funds, most importantly your general fund. It's really only to the liability, the compensated absences liability on your district wide financial statements. That is I think the most important thing that everyone needs to know going into this, that it's really just the, those district wide financial statements. Now we expect that and we'll, we'll kind of touch upon it more as we go through. Most districts will see increases in their compensated absences liabilities as a result of this.

[Melissa Zott]

And there have been, you know, some other factors as well. I think with 101 you're already doing a lot of the calculation already with the composite absences under GASB 16, you're calculating out the hours, you're looking at the maximums based on your bargaining unit agreements. Now 101 is just kind of broadening that a little bit. So it's not like you have to redo your entire calculation. The big lift I think is just going to be on the more likely than not judgmental analysis really at that point.

[John Brucato]

Can you tell me a little bit more of the more likely than not is that up to the district's discretion? Is that in consultation with the district's auditors? You know, anytime there's regulation changes that come towards us that are, you know, more likely than not or leave discretion, it's, it's always kind of up in the air and there, I, I understand there probably isn't always a great answer, but from, from your initial look at it, what is kind of your take on the more likely than not? Like who is really making that distinction?

[Melissa Zott]

GASB defined more likely than not being at least more than 50% chance of happening.

[John Brucato]

So it's a little bit more defined.

[Melissa Zott]

Yeah. Which is good. And I, and I think we've been a little bit familiar with the more likely than not with the GASB 87 leases and the GASB 96 subscriptions. Where are you more likely than not to extend or use those option years? Right. So you should be somewhat familiar. At least now we have more than 50%. Are the employees likely to use the leave? Are they more than likely being paid out these cash payments?

[John Brucato]

Okay, great. So that likeliness does actually have some kind of numerical threshold that we can kind of peg to. That's good. That's good.

[Melissa Zott]

Yeah.

[John Brucato]

You know, Melissa, you had mentioned that the vesting concept is now being removed as a part of this. Can you maybe take a moment and explain what that actually is and what is the true impact to maybe recognizing liabilities?

[Melissa Zott]

Sure. Yeah. So vesting, you know, the calculation when you look at your bargaining agreements, all of your contracts, sometimes it'll be based on years of service. Upon separation, it might be capped out on a maximum. So if you look through your agreements, you might see vacation hours can be paid out upon separation at a maximum of 160 hours. And that's the time frame or the amount that you would use to calculate out what your compensated absences liability is. Now at this point, with 101, that's essentially removed because the employees are going to be using this. Vacation, sick time, any other benefits that you offer. And you're really looking at three different factors. One, the leave has to be accumulated based on services that have already been rendered by the employees, so they've accumulated up to date. Two, are they able to be using this in future periods? And then three, again, more than likely not to be to be used.

[John Brucato]

And so what are some of those biggest challenges you're anticipating districts facing with implementing this? And what would you recommend districts do now to prepare? Because this ultimately is coming up pretty quickly.

[Jeff Shaver]

So I would say, you know, the challenge is going to be a first year implementation. And I think that's probably true with any standard getting your hands around it. The first year could, you know, is going to take a little extra work. It's going to take a look at all the possible leave accruals that are in the contracts that every district faces. And it's a little more challenging because that can vary from school district to school district. There may be some similarities across districts, but each district has its own collective bargaining agreements. So this could look different for every single school district. And that makes it harder for implementation because one school district may be able to reach out to another school district and say, how did you handle this? And that might have worked for that district, but it may not work for the, for your school district. So the specificness of it or the individual ness of it I think is a little bit of a challenge. Will be a challenge for some districts. Obviously, if you can find a district with very similar contractual arrangements, those might be the best districts to kind of, you know, consult with in conjunction with your auditors to help determine how they're handling specific things. And you have, you have to take a fresh look, I think, you know, take a fresh look at everything that's in those, those compensated absences calculations to make sure you're accounting for everything that you now need to account for.

[John Brucato]

And I have to ask too, I mean, we focus a lot on what the district has to do to prepare for this. And you know, there's a lot of collective eye rolling, I will admit. You know, when new gasbs come out, especially if it requires new reports, new work, you know, yada yada, same old thing. What do you have to do as auditors to prepare for new GasB's? I mean, I'm assuming you go through some training. Do you have internal meetings with your, your firm to kind of flesh out what you have to prepare for? Tell me a little bit what goes on behind the scenes for you guys, because it's kind of a shared responsibility, right, with a new gasb coming out?

[Jeff Shaver]

Absolutely. We think, I mean, in my personal feeling, it's our responsibility as auditors to help inform our clients, in this case our school district clients, what they need to do to implement the standard appropriately. So I consider it to be part of our work here at the firm to get up to speed on these standards well in advance of our clients. So we can do podcasts like this or like you mentioned the webinar we did a few weeks ago. There's obviously a lot of research and a lot of work that went into that webinar. We've been listening to seminars and webinars on, on all the changes in the accounting standards and they usually start those years before they have to implement. So we've been hearing about, Melissa and I and the other partners and managers here at the firm have been hearing about GASB101 for, I don't know, at least, I would say at least three or four years because there is, there is some lead time that the GASB gives you and they also, the Gatsby also, you know, issues what they call exposure drafts and they allow the community to comment on, you know, things that they're proposing and things that they're going to do. So people who, you know, we know, I know the eye rolls I've seen, the eye rolls I've done.

[John Brucato]

I was going to say, are any of the comments like, please stop.

[Jeff Shaver]

Like, yes, you know, and sometimes in those exposure Dr. You have a chance, if you wanted to respond to them, if you took the time to respond, you could push back and say, what's the cost benefit analysis to this? I mean, this is going to be, this is going to take potentially X number of hours. And what really is the benefit to users of financial statements? So just rolling your eyes after the fact is one way to handle it or possibly another way would be to get an organization like ASBO could get behind something or our firm or, you know, auditing, you know, industry groups and things like that. To kind of respond to these exposure drafts, to at least get your input in there. And if you feel like maybe there's something not necessary as part of the standard, you certainly free to say that as well. So this, this is really a years long process and as we're doing this right now, there's others coming up within the next few years that we're also working on. So it's like never ending unfortunately, you know, fortunately for our clients, you know, it's a kind of a never ending thing. It doesn't seem to be slowing down or stopping in any way. I always like to say anytime I get a chance to speak in front of anyone, we don't write these. We're not the guests.

[John Brucato]

Don't shoot the messenger.

[Jeff Shaver]

Yeah, don't shoot the messenger. So we just, we're just, just like our clients who, you know, might be frustrated we're having to digest this for the first time and, and help our clients implement so. But we didn't do this to you. That's what I, that's what I wanted to say.

[Melissa Zott]

It's interesting to read through the GASB statement too because they do actually put some of the comments that they received during that exposure draft commentary period and then the board's response to it. Well, because some people did say, you know, we don't like the. More likely than not we want to get rid of that and just include everything. And then they respond to it and put their conclusion. And so it is, it is kind of interesting to read through why they're making certain decisions.

[John Brucato]

And as far as I understand it too, Melissa, maybe you and I were speaking at an audit committee meeting or something like that. But none of this is novel for the auditing industry in terms of that GASB 101, 96, 87 more recently. This isn't new, conceptually. It sounds like a lot of this is happening in the private sector and that the public sector auditing standards are just kind of catching up to what's already out there. Am I remembering that correctly?

[Melissa Zott]

Yes. Yeah, we did talk about that. It's very true. Yeah, they definitely try to look at what FASB is doing and try to impact that on the GASB standards as well.

[John Brucato]

Yeah. So are there any specific tools or reports maybe that school business officials can start working on now to get in place before year end just to comply with GASB 101 and maybe make their lives a little bit more easy?

[Melissa Zott]

I think you should, you know, since you've been doing the calculation under GASB 16, you should have a reporting tool or reporting mechanism already that's saying how much, how many hours have been accumulated thus far. You've probably taken that and then kind of parse it down to reach those maximum or those caps that you have. So once you read through the agreements, as Jeff had mentioned, which is going to be really key to kind of start over with that, make sure that those reports include all of those hours, because maybe it is only just vacation and sick, maybe it's not personal or PTO or different other leaves that you might offer. So make sure that it is inclusive of everything.

[John Brucato]

So I'd like to kind of maybe run through a few semi or practical scenarios. I mean, Jeff, to your point, every school district's collective bargaining agreements are going to be nuanced and different. But maybe we can touch on a few scenarios that may be found in the wild more often than not. So, you know, for instance, if an employee is able to carry over half of their vacation days, is a district supposed to accrue the liability for those days? Is that. How does that factor into the vesting concept? Talk to me about maybe that scenario.

[Jeff Shaver]

So generally, the quick answer would be yes. Generally you'd have to accrue for those carryover vacation days as the services have already been rendered by the employee, you're titled to take those days in the future. The only possible reason why you may not accrue for those, if you could conclude that it's more likely than not that they're going to leave them on the table and not use those. So I think that's a somewhat unusual circumstance as it relates to vacation days, at least in my experience that most employees, whether public sector, private sector, whatever the case may be, it's somewhat rare for, you know, large swaths of the employee population to leave vacation days on the table. So unless you could get over that hurdle, you're more likely than not going to be going to be accruing.

[Melissa Zott]

The.

[Jeff Shaver]

Value of those vacation days.

[John Brucato]

And so how do you make a judgment call on that? I mean, do you look at an employee's vacation history and say, well, they're more likely than not going to use them or not use them? I mean, that's such an interesting, really, really finite specific example, you know, so.

[Jeff Shaver]

There is some help with this. GFOA has a specific tool that can help. It's on their website, actually, if anybody wanted to download it. We've looked at it internally. We actually incorporated it into our webinar presentation. And it's exactly like you said. You're looking at some population of your current employees and getting a history on how much vacation time they use. And you know, and, and that would be. It's not a guarantee that that's going to play itself out in the future, but it's a history specific to your entity and that could support your reasoning for accruing or not accruing. If you pull a sample of your employees and you find that every single one of them has taken all their vacation days, I think you'd have a hard time arguing to an auditor or anyone else that you shouldn't accrue those days. I kind of surmise that that will be most school districts situation is that people are taking their vacation days.

[John Brucato]

So this more likely than not language, even though it Is tied to 50%, it could change from year to year. I mean, is there any leeway or anything with this standard to basically acknowledge that these are kind of judgment calls year to year? I mean, what is your take on that?

[Jeff Shaver]

So I would say the GASB understands and I think the accounting industry understands that the compensated absences liability is an estimated liability. It's very different from say accounts payable where someone sends you an invoice, you have to pay that invoice and that's really the amount. No estimation there at all. In this case, you know, we're taking a guess or our clients are required to take a guess at what their employees will use in the future and what they might get paid out for in the future. So there's, there's inherent estimation in that, in that process. And that can change over time.

[John Brucato]

Right.

[Jeff Shaver]

So you know, you might right now see people taking all their vacation time, but maybe something changes in the, in the, at the entity that causes them not to be able to do that or for some other reason they don't stop doing that. And that, that can change in the future. So every once in a while the school district would need to revisit these, these assumptions to figure out if that more likely than not has changed.

[Melissa Zott]

I think too you would probably want to, I would assume, because we haven't really implemented this yet, but I would assume that the use of these days might be different based on the different generations of the employees that you have at the school districts as well.

[John Brucato]

That's what I was thinking.

[Melissa Zott]

Yeah, yeah. So, you know, different folks have different, you know, uses if they want to use it now, if they want to save it up for retirement. So just making sure that when you are doing this historical analysis for your judgment of more likely than not, making sure you Get a good sample based on, you know, all the different types of employees that you do have.

[John Brucato]

Right. And you know, for districts that may have astute and curious community members. Is there a footnote or anything in the financial audits and the statement saying that this truly is an estimate and it if it does change, that could be likely depending on how employees are using their benefits.

[Melissa Zott]

You know, I think we currently have a footnote in the financial statements for compensated absences. And it talks about what is being paid out. I think it's more geared towards what's paid out at separation. But it probably would make sense to include the other types of benefits that are included to be used, since that's where GASB 101 is being headed as well.

[John Brucato]

So another scenario. So if employees are able to convert their sick days to health insurance upon retirement, can you talk to me how GASB101 would treat this specific scenario? Because this is something, I mean, I know, at least in our area, that is pretty prevalent and I'm sure is common to a lot of our listeners too.

[Melissa Zott]

So GASB101 has this kind of falling under the regular sick leave. So you would go through the other steps that you would normally go through. Is it more likely than not to be converted into the health insurance credits or used? Can it be accumulated based on the services rendered? And then are they able to use it in future periods? Basically using that or converting it to those health insurance credits would be using that in the future period. So it would just fall under the same calculation.

[Jeff Shaver]

Got it.

[John Brucato]

And Melissa, you did speak to this a little bit already, but if payouts are based on accumulated days and years of service, how should school districts really approach and calculate those liabilities?

[Melissa Zott]

I think the focus is really being pulled away from payouts. Right. We're not necessarily just focused on the payout aspect. It's more on are they able to use it in future periods. So as long as they're accumulating the days and they can use it in future periods, so not just the payout piece, but using it, then more likely than not, you would definitely include that in your calculation.

[John Brucato]

And does the 403 plan payout put any difference into how they should be calculated under 101? Because that's a common thing. I see too. Is that a lump sum may be paid out to a 403 plan?

[Jeff Shaver]

No, that would have no impact. You know, if it was going to be directed to a 403, you'd still have to include it in the calculation.

[John Brucato]

Got it. All Right. So we went through a couple scenarios. I mean I'm sure there's going to be a lot more depending on how complicated your CBAs are in your, in your school district. But let's talk a little bit more about really kind of measurement and reporting for 101. How does one on one define the pay rate to use for liability calculations? It at year end, the rate when you leave, like how is that calculated?

[Jeff Shaver]

So this is actually an easy, a relatively easy one. They which is why I'll take it. I'll let Melissa take the next. It's just the rate at the balance sheet date. So whatever, whatever the employee rate is. June 30, 2025, I guess we're talking about now.

[John Brucato]

Yeah, yeah.

[Jeff Shaver]

Hard to believe that's the one you need to use.

[Melissa Zott]

I've gotten some questions too about that because a lot of my business officials will be like, well, they're going to be paid out with the new raises which are effective July 1st. We are reporting as of the balance sheet date. So June 30th and that's really what the number that we have to use, unfortunately.

[John Brucato]

Great. And then Jeff, you did touch on that a little bit. But you know, if there are changes in assumptions or revisions to estimates, how should districts really approach that throughout this implementation of 101?

[Jeff Shaver]

So it's, it's going to be, you know, the accounting standards talk about changes of assumptions and how those are accounted for. Generally changes of assumptions are accounted for prospectively. So it would just be resulting in a net change in the compensated absences liability if some something were to change about the more likely than not if something changes at one specific school district, you just change that in the year that that happens. And it's really just reflected in the net change. You do cause me to think about something else. I just wanted to mention briefly, for the first year of implementation here you do districts will need to do a restatement of the opening liability. So you would need to essentially do this calculation as of June 30, 2024. We're going to have to restate the liability as of as of that date and then of course update that for June 30, 2025 for accrual @ the end of the year. So that's just something that will only be in the first year of implementation. Any changes after that would just be accounted for in the year that you make the change.

[John Brucato]

And is that so you're really just comparing apples to apples because this has changed one year over the next. So you really want to kind of level set with the same 101 standard. So when you go into your 24 or 25 rather audited financials, you're looking at something that's similar. You're not comparing a 16 to a 101 or otherwise.

[Jeff Shaver]

Exactly. Because if you didn't do that, you could have a significant increase in the compensated absences and that would lead the reader to say, hey, what happened? You know, what happened here? Well, what happened here is we implemented a new accounting standard and we had to, you know, reflect the changes. And the accounting standard says, well, you got it. When you do that, you have to recalculate the old.

[John Brucato]

So now I understand the head spinning that I mentioned before. So you got to go back another year. So, you know, if a district does accrue more than what, you know, we talked about the payout, and this is obviously casting a wider net in terms of what you're calculating for liability. But if a district accrues more than what that maximum payout amount is in the cba, how is that reflected in the financial statements compared to maybe what it was before?

[Melissa Zott]

So, you know, generally we see GASB statements adding a lot more work that we have to do in this regard for your financial statement purposes when you're showing it on your long term debt chart. Now instead of having to, I think under 16, you had to calculate how much was actually paid out for your maturities column and how much was accrued for your additions columns. You're reporting those separately. Luckily with 101 they took that away. So now you could just report the net change number. So while you do have to do some more calculations, you're, you're lucky enough that you don't have to, to gross that up.

[John Brucato]

Okay. And I believe, Melissa, you did talk about a sample size. So what constitutes a good sample size for estimating sick leave and payouts? And you know, how can that be substantiated by school districts?

[Melissa Zott]

Yeah, you know, GASB 101 does not define a good sample size, unfortunately. And Jeff and I were talking about this too about like, well, what, what do we want to see as auditors? Because we're going to want to see the calculation what judgment calls you made based on your historical analysis. And we can definitely provide to you the sample sizes that we use through the AICPA guide. So if you have less than 250 employees, you can use 10% of your population. If you have over 250 employees, then I would suggest using 25 just as a flat number. Important thing like we talked about before, just making sure that your sample is representative of your population, making sure you're factoring in all the different generations that you have. So that would be really important.

[Jeff Shaver]

And I think, to add to what Melissa said, I think it's important. And this is part of the judgment that's involved here. And only someone at the district level could do this. After you're done with selecting whatever population, sample population that you've chosen to make, take a step back, take a look at it and see if that makes sense for someone who's been at the district for, say, a number of years and is familiar with the, with the patterns at the district. Does it, does it pass muster at a basic level? I think that's could be the hard part where you, you know, some judgment needs to be applied. Auditors, you know, we can look at what you did and we can follow it through. We don't. We're not at a school district every day, so we don't know the employment patterns. We don't know all that history. It really needs. That really needs to be done by someone internally to say, hey, does this really mirror up with what's happening here? Because that's really the important part. Do those numbers that you're calculating make sense? If they don't, maybe your population's too small. Maybe you didn't consider the generations that Melissa was referring to. Maybe you didn't pick from different collective bargaining agreements. If it doesn't make sense at its face, you know, probably need to take it a step further to make sure, you know, it really should make sense to people in the business office what those sample sizes are showing you.

[Melissa Zott]

I think it points back to what Jeff said before, is the first year is really going to be the year that you're really going to spend a lot of time thinking about the methodology, going back through the historical analysis and really just doing your due diligence and the calculation and the sample size.

[John Brucato]

So that makes me think too. I mean, again, the caveat being it all depends on how your district is structured. But it sounds like there is going to be some tight collaboration between maybe the business office and human resources to really reconcile those absence patterns and accrued liabilities with compensated absences. So probably worth engaging your HR department just to kind of give them a heads up that not only are you going to have to do this calculation for the 25 fiscal year, but go back to 24 as well. So hopefully there's good recordkeeping and you're able to kind of pull that data pretty easily. So what are, what are some best practices that districts can, can implement as they approach Gasbia 101 at year end?

[Melissa Zott]

So, you know, we talked about reading through the bargaining agreements or the contracts. I would definitely start there. Like we said, start fresh, get a good understanding of what benefits are offered to the different groups of employees, write those down, then move on to your more likely than not analysis because you have to restate 6-30-24. You can actually do that analysis now. So you could definitely get a jump start on it. I would recalculate that and then go and use that for your 6-30-25 as well.

[John Brucato]

And then if a school business official, ultimately they have to communicate these concepts to audit committees and boards of education and maybe even community members. You know, how do you feel that school business officials can effectively do so to those their constituents?

[Jeff Shaver]

Yeah, I mean that's, that's sometimes a challenging thing to do is take something that's pretty nuanced and somewhat complex and explain it to a group of people, people who are not, you know, living living the standards day to day. So, you know, I think explaining it at a very high level that the, there's a new accounting standard that we have to follow and that it has changed the way we calculate our liability for competition, stated absences related to our employees. And you know, at a high level it's requiring the liabilities to increase. It doesn't mean that we'll be paying out more. It doesn't mean we'll be paying out any less. It just means the way we're accounting for them and presenting them has to change.

[John Brucato]

And so, you know, six months from now it'll be GASB 101 on top of everything else. What advice do you have for those listening to get prepared for 101?

[Melissa Zott]

I would definitely say to start your calculation now, I wouldn't wait till the end. I think generally that's our recommendation when any GASB gets implemented. The earlier you start, the less you have to rush around towards the end. And the fact that you do have to restate does give you time and opportunity to really think through that judgment, look through your historical information, see what trends you have, speak to, like you said, your HR department and try to get a good basis on exactly how you want to move forward. I think would be good.

[John Brucato]

Great. Well, Melissa, Jeff, thank you so much for carving a little time out to talk GASB101. I'm sure this won't be the last time I have you on School of Business Insider. Because, Jeff, to your point, it seems like GASB is just on a streak of introducing new statements for all of us to enj. So thank you again for hopping on and I look forward to bringing you back on in the future.

[Melissa Zott]

Thank you so much.

[Jeff Shaver]

Thanks, John. Appreciate it.

[John Brucato]

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