New Reporting Requirements for the 2024 Annual Financial Report

It’s that time of year when finance departments across the state are focusing on the annual financial report that must be filed with the Washington State Auditor’s Office (SAO) no later than Friday, May 30, 2025.

If you are someone who is new to preparing the annual financial report for a cash-basis entity, you may be interested in attending MRSC’s Annual Financial Reporting Webinar Series, which is being held April 1–2. The webinar will go through the schedules and notes that must be included in the annual report. Additionally, it will discuss two new reporting requirements for the 2024 report - GASB Statement No. 100: Accounting Changes and Error Corrections, and GASB Statement No. 101: Compensated Absences.

This blog will discuss these new reporting requirements as they relate to cash-basis entities.

Reporting Requirements for Accounting Changes and Error Corrections

GASB Statement No. 100 establishes accounting and reporting requirements for accounting changes and for correcting an error in previously issued financial statements.

What is an accounting change?

Accounting changes can either be a change in accounting principle or a change to or within the financial reporting entity. A change in accounting principle would be when an entity switches from one generally accepted accounting principle to another one. Similarly, an accounting change would be the implementation of a new GASB accounting or financial reporting pronouncement.

Another accounting change would be a change to or within the financial reporting entity, such as when a local government opens or closes a fund and moves the related financial activity. Another example would be if there is a change in reporting at the fund level, such as when a special revenue fund no longer meets the criteria of a special revenue fund and will become a managerial fund that is rolled up into the general fund.

What is an error correction?

An error correction includes errors that have been identified since the previous financial statement date. Examples include mathematical mistakes, a mistake in the application of an accounting principle, oversight or misuse of facts that existed at the time the financial statements were issued about conditions that existed as of the financial statement date, or amounts that are refunded to the government (or fund) that are material from prior year financial activity.

SAO’s BARS Manual provides new BARS codes to account for these changes and error corrections, as well as a note disclosure template.

Compensated Absences

Although reporting compensated absences is not new, GASB Statement No. 101 updates the recognition and measurement guidance for compensated absences. Local governments must recognize liability for leave that has not been used as well as liability for leave that has been used but not paid.

For leave that has not been used, local governments should only recognize:

• leave that is attributable to services already earned (the employee has performed the services required to earn the leave);
• leave that accumulates (is carried forward and can be used or paid in cash or settled through non-cash means in a future year), and;
• leave in which there is a greater than 50% likelihood that it will be used for time off or paid in cash or settled through non-cash means.

In order to determine if there is a greater than 50% likelihood that the leave will be used for time off, paid in cash, or settled through non-cash means, local governments should review their leave policies for compensated absences. Additionally, they will need to review historical information about the use, payment, and forfeiture of compensated absences. Another factor to consider is information known to the local government that might indicate that historical information might not be representative of future patterns.

Not all leave types will be included in the liability for compensated absences. Leave that can only be used upon the occurrence of a sporadic event that affects a small portion of employees should not be included in the liability for compensated absences unless the leave has commenced and continues over into the next fiscal year (e.g., bereavement leave, jury duty, military leave, and parental leave).

When calculating the liability for compensated absences, local governments must include salary-related payments that are an additional cost directly and incrementally associated with the payment. A salary-related payment is considered directly associated if the amount of the payment depends on the salary to be paid. A salary-related payment is considered incrementally associated if the local government will make a payment in addition to the payment for salary.

Plan contributions to the Washington State Department of Retirement Systems (DRS) should not be included in salary-related payments and, therefore, not included in the liability calculation.

Calculations should be made for each leave type, and local governments may choose to further group leave types based on bargaining units, employee type, etc. Such groupings should be applied and calculated consistently over reporting years.

Resources

I will be having a more in-depth discussion of these new reporting requirements during the Annual Financial Reporting Webinar Series. Additionally, I recommend reviewing the information provided on SAO’s Coming in Fiscal Year 2024 (GAAP and Cash) webpage.

Aside from accounting and reporting information for both new reporting requirements, the SAO has produced instructional videos on both GASB Statement No. 100 and GASB Statement No. 101. As always, feel free to email me your questions, or you can submit an inquiry through Ask MRSC.