Governmental Accounting Standards Board (GASB) Issues New Statements on Error Corrections, Changes in Estimates, and Compensated Absences
- Aug 9, 2022 12:33 am GMT
GASB 100 and GASB 101 are here!
The Governmental Accounting Standards Board (GASB) is the accounting oversight body for state and local governments. GASB has made one of its standing projects to review older GASB’s pronouncements that were incorporated from the private sector accounting body - the Financial Accounting Standards Board (FASB). GASB wrapped these FASB statements into its realm in GASB Statement No. 62 - Codification of Accounting and Financial Reporting Guidance Contained in Pre-November 30, 1989 FASB and AICPA Pronouncements (that’s a mouthful).
Two of those standards - (1) accounting changes and error corrections and (2) compensated absence liabilities were recently released. This article summarizes the highlights and effective dates of those two new standards.
GASB 100 and GASB 101 takeaways
1. GASB Statement No. 100 - Accounting Changes and Error Corrections - An Amendment of GASB Statement No. 62 - is effective for accounting changes and error corrections made in fiscal years beginning after June 15, 2023.
2. GASB Statement No. 101 - Compensated Absences - requires recording compensation due to employees as a liability if not paid at the date of the financial statements. The amount due should be calculated at the employee’s pay rate as of the date of financials. The Statement reduces the note disclosure and excludes certain compensated absences such as parental leave, military leave, and jury duty from the calculated liability. Statement 101 is effective for fiscal years beginning after December 15, 2023. Earlier application is encouraged.
3. The statements should have a limited impact on utility business processes and financial Statement disclosures, as many utilities currently record these items.
4. Both standards will directly impact customer rates, so attention needs to be paid to the impact on budgets.
How does this impact utilities?
As most municipal utilities record the amount of compensated absences and record error corrections and changes in estimates in the manner advocated in these statements, we don’t anticipate many changes in the approach used by utilities (aka a big nothing-burger). A public sector utility will have to acknowledge in its financials that it has adopted the provisions of each Statement.
Accounting Changes and Error Corrections - GASB Statement No. 100
GASB cracks the 100 statement barrier with GASB Statement No. 100 - Accounting Changes and Error Corrections - An Amendment of GASB Statement No. 62 - is effective for accounting changes and error corrections made in fiscal years beginning after June 15, 2023.
The Statement defines accounting changes as:
Changes in accounting principles
Changes in accounting estimates
Changes to or within the financial reporting entity
In the description of changes in accounting principles and estimates, the Statement requires a description as to why the new method is preferable to the current method, basing the preferability on the characteristic of financial reporting:
Financial statement presentation for accounting changes and error corrections
The Statement requires that changes in principles and error corrections be reported retroactively by restating all prior periods presented in the financials. Statement No. 100 also requires that the aggregate amount of adjustments to and restatements of beginning net position, fund balance, or fund net position, as applicable, be displayed by reporting unit in the financial statements.
For required supplementary information (RSI), such as the Management’s Discussion and Analysis (MD&A), for periods that are earlier than those included in the basic financial statements, the information presented in RSI or SI should be restated for error corrections if practicable, but not for changes in accounting principles.
Financial statement presentation for changes in the financial reporting entity
An example of a change in the financial reporting entity would be establishing a broadband communication fund, whose activities were previously contained in the electric utility fund.
Changes in the financial reporting entity should be reported by adjusting the beginning balances of the current period.
Presenting changes in estimates
Changes in estimates (such as a change in depreciation expense due to an adjustment to the useful lives of assets) should be reported prospectively by recognizing the change in the current period.
UAES Comments on GASB 100
There isn’t new ground here, but the financial statements should reflect that the organization has adopted the provisions of Statement No. 100 and provide note disclosures detailing the changes, errors, impacts on beginning balances, and highlight the preferability of changes to new methods.
Compensated Absences - GASB Statement No. 101
GASB smashes through the century mark with Statement 101. GASB Statement No. 101 - Compensated Absences - revisits a long-standing practice of recording material amounts due to employees with deeper definitions more suited to today’s workplace. Most of the requirements are common sense, i.e., if the compensation has been earned but not yet paid, then a liability should be reported.
Rules for recognizing compensated absences
Recording compensated absence liabilities for unused vacation, sick leave, and hourly compensation time in utilities is common. Statement 101 This Statement requires that liabilities for compensated absences be recognized for (1) leave that has not been used and (2) leave that has been used but not yet paid in cash or settled through noncash means. The rate used to calculate the leave should be the employee’s pay rate as of the date of the financial statements. These changes in accrued compensated absences should be included as part of the construction overhead loading for municipal utilities.
Types of compensated absences EXCLUDED from recording and disclosures
Statement 101 requires that a liability for certain types of compensated absences—including parental leave, military leave, and jury duty leave—not be recognized until the leave commences. This Statement also requires that a liability for specific types of compensated absences not be recognized until the leave is used.
This Statement amends the existing requirement to disclose the gross increases and decreases in a liability for compensated absences to allow governments to disclose only the net change in the liability (as long as they identify it as a net change). In addition, governments are no longer required to disclose which governmental funds typically have been used to liquidate the liability for compensated absences.
Effective date for Statement 101
Statement 101 is effective for fiscal years beginning after December 15, 2023. Earlier application is encouraged. The application date should be be done in consideration of a utility budget for its impact on rates.
UAES Comments on GASB 100 and GASB 101
The statements should have a limited impact on utility business processes and financial Statement disclosures, as many utilities currently record these items. Utilities will need to note in their financial statements that they have considered the impact of Statements 100 and 101, and when they have adopted each Statement.
About Russ Hissom - Article Author
Russ is the owner of Utility Accounting Education Specialists a firm that provides power utilities consulting services and online/on-demand courses on accounting, finance, FERC best-practices, improving business processes, and implementing strategy. Russ is passionate about the Power and Utilities Industry and his goal is to share industry best practices to help better your business and enhance your career knowledge. He has over 35 years serving electric investor-owned and public power utilities, electric cooperatives, broadband providers, and water, wastewater, and gas utilities as a past partner in a national public accounting and consulting firm's power and utilities practice. Russ was named one of the 2021 Top Voices in the Energy Central Community by EnergyBiz Network.
The material in this article is for informational purposes only and should not be taken as legal or accounting advice provided by UAES. You should seek formal advice on this topic from your accounting advisor.
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