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Wiley GAAP for Governments 2013: Interpretation and Application of Generally Accepted Accounting Principles for State and Local Governments by Warren Ruppel

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CHAPTER 18

COMPENSATED ABSENCES

Introduction

Scope of GASBS 16

Basic Principle

Vacation Leave

Sick Leave

Termination payment method

Vesting Method

Sabbatical Leave

Other Factors Affecting the Liability Calculation

Financial Reporting Considerations

Summary

INTRODUCTION

Governmental entities almost always provide benefits to their employees in the form of compensated absences—which is a catchall phrase for instances where an employee is not at work, but is still paid. Vacation pay and sick leave represent the most common and frequently used forms of compensated absences.

In the past, governmental entities used the guidance of FASB Statement 43 (SFAS 43), Accounting for Compensated Absences (now FASB ASC 710-10) in accounting for and reporting liabilities for compensated absences. One of the objectives of SFAS 43 was the matching of compensation expense with the benefits received from an employee’s work. In other words, as an employee works and earns vacation and sick leave that will be paid or used in the future, there should be some recognition that a liability and an expense has occurred during the time that the employee is providing the services. Of course, using the basis of accounting and measurement focus of governmental funds, the liability for compensated absences is generally not recorded by the fund, but is instead only recorded in the government-wide statement of net assets. There is no corresponding expenditure in the governmental fund until these amounts are actually ...

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