Governmental Accounting Standards Update: 8/1/22

The Governmental Accounting Standards Board (GASB) regularly issues GASB statements to set accounting and financial reporting standards for state and local governments that follow generally accepted accounting principles in the United States (U.S. GAAP). Below are select statements that were recently issued.

• GASB Statement No. 100, Accounting Changes and Error Corrections
• GASB Statement No. 101, Compensated Absences

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GASB Statement No. 100, Accounting Changes and Error Corrections

The GASB has issued Statement No. 100, Accounting Changes and Error Corrections to provide more understandable, reliable, relevant, consistent, and comparable data for financial statement users.

“Accounting changes” are defined in GASB Statement No. 100 as changes in accounting principles, changes in estimates, and changes to or within the financial reporting entity. Changes in accounting principles and estimates are only warranted when a new principle or methodology is determined to be preferable to that which was in use prior to the change, based on the qualitative characteristics of financial reporting.

The statement specifies whether prospective or retrospective implementation is required for accounting changes and error corrections. When an accounting principle change or error correction is warranted, restatement of prior period financial statements is required. For changes to or within the financial reporting entity, the beginning balance of the current period must be adjusted. Changes in accounting estimates are required to be reported prospectively, whereby the change is recognized only in the current period. Applications of new accounting pronouncements, unless specifically stated in the pronouncement, are required to be reported prospectively as an accounting change. Adjustments and restatements to beginning net position, fund balance, or net position, must be displayed in aggregate by reporting unit in the financial statements. Disclosure in the notes to the financial statements is required for changes and error corrections to emphasize the nature of the change. In addition, a reconciliation is required to be presented in tabular format by reporting unit to reconcile between previously reported and restated or adjusted beginning balances.

Required supplementary information (RSI), including the management’s discussion and analysis, and supplementary information (SI) should be restated or adjusted in the same manner as the basic financial statements for any reporting periods presented in the basic financial statements. Further, RSI and SI should be restated for error corrections, where practicable, for periods earlier than those included in the basic financial statements. RSI and SI should not be restated or adjusted for changes in accounting principles or changes to or within the financial reporting entity for prior periods earlier than those presented in the basic financial statements.

The GASB has encouraged early adoption, with the statement being effective for fiscal years beginning after June 15, 2023.

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GASB Statement No. 101, Compensated Absences

The GASB has issued Statement No. 101, Compensated Absences to better inform financial statement users regarding the recognition and measurement of compensated absences.

This statement applies to recognition of the following types of compensated absences:

• Leave that has not been used
• Leave that has been used but not yet paid in cash or settled through noncash means

Recognition of a liability should occur for leave that has not been used if all of the following are met:

• The leave is attributable to services already rendered by an employee.
• The leave accumulates and is carried forward over multiple reporting periods whereby it may be used, paid or settled.
• The leave is more likely than not to be used for time off or otherwise paid in cash or settled through noncash means.¹

For specific types of compensated absences such as parental leave, military leave, and jury duty leave, recognition of a liability need not be recorded until the leave occurs.

Measurement of compensated absences that have not been used must be calculated by using the employee’s rate of pay as of the date of the financial statements, based on the cash or noncash payment anticipated to be made. Any salary-related payments that have any implications on the total payment should be considered in the liability measurement. When utilizing the current financial resource measurement focus for financial statement preparation, expenditures must be recognized for the amount that normally would be liquidated.

The disclosure requirements for compensated absences have been amended to require only the net change in the liability for compensated absences be disclosed rather than the gross increases and decreases as previously required. In addition, disclosure of which governmental funds have been used to liquidate the liability for compensated absences is no longer required.

The GASB has encouraged early adoption, with the statement being effective for fiscal years beginning after Dec. 15, 2023.

¹In determining whether the leave is more likely than not to be used, paid, or settled, the government should reference policies in place regarding payment of compensated absences and historical data. A liability need not be recorded if the compensated absence is to be settled through conversion to defined benefit postemployment benefits.