Recording Vacation Accrual

Scope

A liability for vacation balances is accrued for benefit-eligible employees of the University of Missouri.

Reason for Policy

To provide guidance for the accrual of vacation leave in accordance with the financial reporting requirements of the Governmental Accounting Standards Board (GASB) Statement No. 16.

Policy Statement

The University’s vacation benefit, exclusive of sick leave, meets the definition of Compensated Absences as defined in GASB as any unused vacation balance is payable to the employee upon termination or retirement from the institution.  Therefore the liability is calculated only on vacation balances.

According to GASB, the Compensated Absence liability is measured using the pay or salary rates in effect at the balance sheet date. It also requires additional amounts to be accrued for certain salary-related payments associated with the payment of Compensated Absences, including employer provided benefits.

The University records the calculation of accrued liability and expense at a campus level ChartField based on PCS category for all Business Units except for University of Missouri Health Care where the liability and expense are recorded in the detail ChartField string from which the employee is paid.  All payments made to the employee for unused vacation upon leaving the University will be paid out of the same detailed ChartField string as their payroll expense.

Vacation Leave balances are stored in the HR/Payroll module. A process is run every month to calculate the dollar amount associated with these accrued vacation balances and to record the dollar amount as a liability to the University. The program calculates the hourly pay for each employee and multiplies it by the number of hours in the Vacation Accrual table for that employee.  The program stores this information in a Finance Table and uses this data to create journal entries in the General Ledger.

At least annually, the campus accounting office reviews the vacation accrual for their respective campus contrasting it with the prior period balances. The UM System Controller’s Office also performs both an annual review at a system wide level.  Both levels of review should for verify the accuracy, completeness and reasonableness of the accrual. The analysis consists of several tests that may include fluctuation analysis, comparing the change in the accrual with the change in salaries, etc.

Definitions

Compensated Absence or Vacation Leave – unused vacation leave balances for which employees will receive full compensation – either as paid time off or compensation at termination or retirement.

Program Classification Structure (PCS) – Categories used in higher education to report expenditures by function or purpose, such as instruction, research, or public service.

Accountabilities

UM System Controller’s Office:

• Run the vacation accrual program each month
• Perform an annual analysis of the accrual to assure reasonableness

Campus Accounting Offices:

• At least annually, review the accrual for reasonableness

Additional Details

Forms

Related Information

Policy 22101 on Finance Account Code Structure

History

Formerly Accounting Policy Manual 55.80 - Recording Vacation Accrual (revised July 1, 2007)

Procedure