Case: Professor Pearl (a client) comes to you for help about the accounting treatment of sabbatical leave. Professor Pearl tells you that his university’s accountant says that because Professor Pearl receives a “sabbatical” once every seven years, the cost of that “sabbatical” must be partially accrued in each of the six years leading up to the “sabbatical” year. The result is that the university compensation cost related to Professor Pearl in each year is one-sixth higher than Professor Pearl’s actual annual cash compensation. As a result Professor Pearl’s cash compensation must be reduced by 17% immediately.

Professor Pearl is dismayed. To him, this seems unfair. He reports to you that this “sabbatical” year is not a year in which he relaxes on the beach. Sure he has no classes that year. However, during that year he is required to appear at the organic chemistry lab each day and mentor chemistry graduate students. He enjoys the work, but it is not as if he were really taking a year off. He wants you to help him convince the university accountant that it is not right to “accrue,” in advance, the cost of his “sabbatical” year salary.

Requirements: Your written “help” should come in a typed memo using the headings/format below.

Date

To:

From:

Re:

Facts:

Issue:

Conclusion: