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.
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]
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"16 is now superseded.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.
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.
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.
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.
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]
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]
8. Best Practices for Preparation
To effectively prepare for GASB 101, Melissa Zott recommends:
- Review Collective Bargaining Agreements: Understand the specific benefits and terms offered to various employee groups.
- Initiate Early Calculations: Begin the "more likely than not" analysis promptly to avoid end-of-year rush.
- 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]
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]
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]
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]
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.