In September of 2001, The Financial Accounting Standards Board (the FASB) issued Statement No. 143, Accounting for Asset Retirement Obligations. Initiated in 1994, the project focused on accounting for the costs of decommissioning nuclear power plants. Later, the FASB expanded the project's scope to include similar closure costs in other industries that are incurred at any time during the life of an asset. SFAS No. 143, Accounting for Asset Retirement Obligations, was effective for years beginning after June 15, 2002. This Statement amended FASB Statement No. 19, Financial Accounting and Reporting by Oil and Gas Producing Companies.
The Financial Accounting Standards Board decided to address the accounting and reporting for asset retirement obligations because:
Users of financial statements indicated that the diverse accounting practices that have developed for obligations associated with the retirement of tangible long-lived assets made it difficult to compare the financial position and results of operations of companies that have similar obligations but account for them differently. In addition, obligations that meet the definition of a liability were not being recognized when those liabilities were incurred, or the recognized liability was not consistently measured or presented. David Henry writes that the Financial Accounting Standards Board (FASB) is a seven-member quasi-governmental board to whom the U.S. Securities and Exchange Commission looks to establish standards for financial accounting and reporting for publicly traded companies in the U.S. The FASB is independent of all other business and professional organizations. The body of rules and auditing standards created by the FASB is called Generally Accepted Accounting Principles (120).
This new rule requires businesses to record the fair value of a liability for an asset retirement obligation in the period in which it is incurred. FAS 143 applies to legal oblig...