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The Governmental Accounting Standards Board (GASB) is conducting pre-agenda research on the application and effectiveness of GASB Statement No. 16, Accounting for Compensated Absences. To inform its efforts, GASB is conducting an online survey designed for financial statement preparers. The survey should take no more than 15 minutes and the completion deadline is July 19.


Compensated absences are unused leave time for which employees will be paid at the end of their employment, such as vacation, sick leave, and sabbatical leave. Statement 16 was issued in 1992 to establish standards of accounting and reporting for compensated absences regardless of the reporting model or fund type used to report the transactions.

For vacation and other compensated absences that are based on providing service, Statement 16 requires the accrual of a liability as benefits are earned. Sick leave and similar compensated absences, by contrast, should be accrued as a liability either (1) as benefits are earned, to the extent it is probable the employer will compensate the employees through cash payments on the condition employment ends (termination payments) or (2) based on leave accumulated as of the date of the financial statements by employees currently eligible or expected to become eligible in the future (vesting) to receive termination payments.

Compensated absences liabilities are based on salary rates in effect as of the financial reporting date and include related accruals such as the employer’s share of FICA.


Compensated absences are a fairly common topic for technical inquiries. Consequently, the following issues will be considered:

  • To what extent do governments continue to separate vacation and sick time in their employment policies?
  • What method(s) do governments use to calculate the liability for sick leave and other compensated absences with similar characteristics: the termination payment method or the vesting method (as described in paragraph 8 of Statement 16)?
  • Should there continue to be a choice regarding how to calculate the sick leave potion of liability? Should one method be eliminated?
  • How do governments determine the current portion of their compensated absences liability?
  • Are there other issues in applying the compensated absences guidance that should be addressed?


Sue Menditto

Senior Director, Accounting Policy


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