Accounting for Asset Retirement Obligations

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 standar

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ent liability arises from the obligation to remove or mitigate the impact of the potentially adverse effects of the operation of certain long-lived assets or the very asset itself. For example, in the waste management industry the costs include: the final capping of the site, site inspections, groundwater monitoring, methane gas control, and maintenance costs. In the investor-owned utility industry, costs include the actual removal and disposal of the activated (hot) equipment and facilities of nuclear reactors. The removal process includes engineering schedules, actual dismantlement of facilities, and current and future security. The mining industry faces costs not only of reclamation of the actual mining site but also of removal of roads, preparation plants, and other facilities. SFAS 143 requires immediate recognition of a liability for such costs, measured at fair value (the amount at which the liability could be settled currently). On the asset side, the estimated cost of retirement must be capitalized to the related asset account at the time the liability is recognized, and future depreciation amounts must be revised accordingly. This means that for utilities with nuclear facilities, plant costs increase by the amount of e
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Approximate Word count = 1993
Approximate Pages = 8 (250 words per page)