Under what conditions must an employer accrue a liability for the cost of compensated absences?

Step by Step Solution: Step 1. Identify the type of compensated absences offered by the employer which include vacation leave, sick leave, personal leave, bereavement leave, military leave, etc. Step 2. Determine if the compensated absences are vested or non-vested. Vested compensated absences are those that the employees are entitled to regardless of their continued employment. Non-vested compensated absences are those that employees are not entitled to until they meet certain eligibility criteria such as length of service. Step 3. If the compensated absences are vested, then the employer must accrue a liability for the cost of the compensated absences if all the following conditions exist: Step 4. {'condition1': "The employee's rights to receive compensation for future absences are attributable to employees' services already rendered", 'condition2': "The obligation is the result of the employer's policy or the employer has communicated to the employees a mutual understanding that it will grant the compensated absences, and", 'condition3': 'The compensated absences can be estimated.'} Step 5. If the compensated absences are non-vested, then the employer must accrue a liability for the cost of the compensated absences if the employees have rendered service that enables them to earn the right to receive the compensated absences that have not yet vested. Step 6. Calculate the amount of liability and record the entry. Step 7. Disclose the nature and amount of the liability in the financial statements.