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CHAPTER 4.3.3
GAAP ADJUSTMENTS AND RECLASSIFICATION ENTRIES
LIABILITIES: ACCRUED COMPENSATED ABSENCES
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GAAP POLICIES AND PROCEDURES
Compensated absences is a liability that is attributable to services already rendered and that
are not contingent on a specific event that is outside the control of the employer and employee
should be accrued as employees earn the rights to the benefits. Compensated absences that
relate to future services or that are contingent on a specific event that is outside the control of
the employer and employee should be accounted for in the period those services are rendered
or those events take place.
Vacation Leave
GASB Statement No. 16, paragraph 7 requires that vacation leave should be accrued as a
liability as the benefits are earned by the employees if both of these conditions are met:
a. The employees’ rights to receive compensation are attributable to service already rendered.
b. 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.
A liability should be accrued for vacation leave that were earned but not used during the current
or prior periods and for which employees can receive compensation in a future period. Benefits
that have been earned but are not yet available for use as paid time off or as some other form
of compensation because employees have not met certain conditions (for example, a minimum
service period for new employees) should be accrued to the extent it is probable that the
employees will meet the conditions for compensation in the future. Benefits that have been
earned but are expected to lapse and thus not result in compensation to employees should not
be accrued as a liability.
ACCRUAL RATE: Calculation of the compensated absences liability should be calculated based
on the pay or salary rates in effect as of July 1st of the following fiscal year.
Other salary related payments
GASB Statement No. 16, paragraph 11 states that, an additional amount should be accrued as
a liability for salary-related payments associated with the payment of compensated absences,
using the same accrual rate as of the SNP date. The salary-related payments subject to this
accrual are those items for which an employer is liable to make a payment directly and
incrementally associated with payments made for compensated absences on termination. Such
salary-related payments include the following:
a. The employer’s contribution of social security
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GAAP Manual | GAAP Adjustments and Reclassification Entries – Liabilities: Accrued
Compensated Absences | June 30, 2015
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b. The employer’s contribution of medicare taxes
c. The employer’s contribution to the employee’s retirement benefit (defined benefit pension
plans)
The accrual should be based on the entire liability for each type of compensated absence to
which the salary-related payments apply. That is, payments associated with termination
payments of vacation leave should be accrued for the entire vacation leave liability, including
leave that might be taken as paid time off rather than paid as termination payments.
The benefit rate in either the H46 report, from The California Leave Accounting System
(CLAS), or the standard reports generated from the Absence Management System (AMS) has
included the above employer’s contributions.
Sick Leave
Paid time off for earned sick leave is contingent on a specific event (illness) that is outside the
control of the employer and employee. Based on GASB Statement No. 16, compensated
absences that are contingent on a specific event that is outside the control of the employer and
employee should be accounted for in the period those events take place. Since sick pay for the
CSU is contingent only upon an employee’s future sickness and will be forfeited on
employee’s termination, the accumulated sick hours are excluded in the calculation of the
compensated absences liability. Besides, sick pay has already been added as part of calculation
of the employer’s contribution to employees’ retirement benefit (defined benefit pension plans)
because unused sick time will be incremented as time worked in the calculation of retirement
(pension plan) benefits.
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RELEVANT ACCOUNTING LITERATURE
GASB Statement No. 34 Basic Financial Statements – and Management’s Discussion and
Analysis – for State and Local Government
GASB Statement No. 16 Accounting for Compensated Absences
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OBJECTIVE OF GAAP ADJUSTMENTS
 To reverse accrual for compensated absences at June 30, 20PY.
 To record an accrual for compensated absences at June 30, 20CY.
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GAAP ACCOUNTING T REATMENT AND JOURNAL ENTRIES
4.1 RELATED GAAP ACCOUNT(S)
712104 – Accrued compensated absences, current portion
712201 – Accrued compensated absences, net of current portion
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GAAP Manual | GAAP Adjustments and Reclassification Entries – Liabilities: Accrued
Compensated Absences | June 30, 2015
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GAAP ACCOUNTING TREATMENT
4.2 COMPENSATED ABSENCES
The GAAP adjustments made to record compensated absences liability are timing
adjustments, since salary expense ultimately is recorded in a campus’ legal basis
accounting records as employees use vacation, CTO or holiday credits and will need to
be reversed in the subsequent year unless a campus chooses to adjust for only the change
in compensated absences amounts between the prior and current years.
Campuses are required to disclose in the SNP, the current and non-current portion of the
compensated absences liability at the end of the fiscal year. The current portion of the
liability is the amount that is expected to be paid out as salary over the next 12 months to
employees who use vacation or other leave credits during that period of time. It has been
determined that either the dollar value of compensated absences paid out during the
current fiscal year or, where a campus determines it to be more accurate, an average of
amounts paid out over the past few fiscal years, are reasonable methods to estimate the
current portion of the ending liability.
Measurement And Required Data
The cost of vacation and other compensated absences must be accrued in the period in
which the absences were earned on a GAAP basis. Since academic year faculty positions
do not accrue vacation, these positions are not subject to this analysis. Staff and
management personnel who remain employed at the end of the fiscal year constitute the
population for whom the cost of accrued compensated absences must be computed. The
data necessary to calculate the compensated absences liability includes:
Name of Employee
Vacation or Personal (Holiday) Leave Accrued (hours)
Compensated Time-Off (CTO) Accrued (hours)
Salary Rate for Vacation
Benefit Rate
CLAS accumulates this information for campuses using that system. A report (H46) has
been developed using data from CLAS that will allow campuses to determine the number
of hours and dollar value of vacation, CTO, and holiday leave credits earned, used, and
remaining at the end of the fiscal year. Campuses may download this information into an
Excel spreadsheet and calculate the total amount of the compensated absences accrual,
usage and ending liability.
There are 22 campuses and Office of the Chancellor currently using AMS in CMS
Human Resources module as it maintains similar leave accounting data.
The data for calculating the compensated absences liability using AMS can be retrieved
through the standard reports developed by the CMS team. Below is the website which
provides step by step instructions to run the standard reports in PeopleSoft:
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GAAP Manual | GAAP Adjustments and Reclassification Entries – Liabilities: Accrued
Compensated Absences | June 30, 2015
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https://csyou.calstate.edu/ProjectsInitiatives/CMS/AppDevelopment/Pages/default.aspx
The number of hours of accrued compensated absences, multiplied by the salary rate per
hour, plus benefits (employer’s share of social security, medicare and retirement
contributions) calculated at the current rate (percentage of salary) yields the compensated
absences accrual amount. Note: For campuses using the H46 report, the benefits are
already built into the “new base salary” amounts, which are used to determine the
“hourly rate”, which in turn is multiplied by the “total hours” to derive the accrual
amount. These total dollars must be allocated to the appropriate CSU funds and
programs.
EXAMPLE
The campus determines that the liability for compensated absences at the end of the
current year is $8,000,000. At the end of the prior year, the campus recorded a
corresponding amount of $7,000,000 as a GAAP adjustment, where the noncurrent
amount is $5,200,000 and the current amount is $1,800,000. The dollar amount of
accrued compensated absences paid out during the current year was determined to be
$2,000,000, and is believed to be a reasonable estimate of the portion of this year’s ending
liability that will be paid out next year.
Reverse Prior Year Balance – Unrestricted
Account
712104
712201
722001
722002
Journal
Description
Account Name
Accrued compensated absences,
current portion
Accrued compensated absences, net
of current portion
Salaries
Program
Class
(CSU
Fund)
881 – Unrestricted
90
485
$1,800,000
881 – Unrestricted
90
485
$5,200,000
881 - Unrestricted
Various
485
($5,000,000)
Fund
(Net Position)
Amount
Benefits
881 - Unrestricted
Various
485
($2,000,000)
To properly reverse the prior year accrued compensated absences balance recorded in PY
for GAAP basis.
Current Year Balance
Account
722001
722002
712104
712201
Journal
Description
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Account Name
Salaries
Fund
(Net Position)
881 - Unrestricted
Program
Various
Class
(CSU
Fund)
485
Amount
$6,500,000
Benefits
881 - Unrestricted
Various
485
$1,500,000
Accrued compensated absences,
881 – Unrestricted
90
485
($2,000,000)
current portion
Accrued compensated absences, net
881 – Unrestricted
90
485
($6,000,000)
of current portion
To properly record 6/30/CY accrued compensated absences balance on a GAAP basis.
GAAP Manual | GAAP Adjustments and Reclassification Entries – Liabilities: Accrued
Compensated Absences | June 30, 2015
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REMINDERS FOR CAMPUSES
Campuses should record compensated absences liability in the CSU funds where the
actual payroll expenses have been recorded. For instance, the general fund (CSU fund
001) usually does not record payroll expenses, therefore, should not have any
compensated absences liability balance. This means most compensated absences should
be recorded in CSU fund 485 since this is where most payroll expenses are recorded.
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REFERENCE TOOLS
5.1 TABLES OF OBJECT CODE AND CSU FUND DEFINITIONS
http://www.calstate.edu/SFSR/standards_and_rules/2014/Tables-of-Object-Code-andCSU-Fund-Definitions-Updated-10-30-14.xls
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GAAP Manual | GAAP Adjustments and Reclassification Entries – Liabilities: Accrued
Compensated Absences | June 30, 2015
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REVISION CONTROL
Document Title:
CHAPTER 4.3.3 – GAAP ADJUSTMENTS AND RECLASSIFICATION ENTRIES
– LIABILITIES: ACCRUED COMPENSATED ABSENCES
REVISION AND APPROVAL HISTORY
Section(s)
Revised
4.03.3-6
Summary of Revisions
Revision
Date
GAAP Manual | GAAP Adjustments and Reclassification Entries – Liabilities: Accrued
Compensated Absences | June 30, 2015