Primary Objective: This project provided accounting guidance regarding recognition and disclosure of certain pollution remediation obligations and set forth methods for measuring and reporting pollution remediation liabilities.
Status: Statement No. 49, Accounting and Financial Reporting for Pollution Remediation Obligations, was issued on November 30, 2006.
Pollution Remediation Obligations—Project Plan
Project Description: The objective of the project is to provide accounting guidance regarding display and disclosure of certain pollution remediation obligations and setting forth the methods for measuring and reporting pollution remediation liabilities.
The scope of the project is limited to pollution (including contamination) remediation obligations and their related costs. It excludes pollution abatement or prevention obligations. It also excludes accounting for future pollution events during the periods leading to the future cleanups (for example, nuclear plant decommissioning or other pollution related to the normal operation of a facility).
Background: This project is needed to address the financial reporting of pollution remediation obligations for which no specific guidance exists for governments. Based on initial research, it was found that governments took different approaches to reporting pollution remediation obligations. This project is intended to provide preparers with specific guidance on how to report pollution remediation obligations, which should result in more consistent reporting, benefiting users of financial statements. A survey of GASAC members conducted in 2001 indicated that a project on environmental liabilities was important and should be added to a list of potential agenda topics.
Accounting Issues: The Pollution Remediation Obligations project includes, among others, the following issues:
The project came onto the Board’s active agenda in June 2002. In a series of meetings from June to November 2002, the Board discussed research on the state of reporting for environmental liabilities by state and local governments. Based on the results of the research, the Board decided to provide accounting and reporting guidance and to limit the scope of the project to pollution remediation obligations.
The project originally contemplated issuing an Exposure Draft (ED) of a proposed Statement of Governmental Accounting and Reporting Standards. However, due to concerns about the proposed use of the expected cash flow technique and the impact that technique could have on other aspects of governmental accounting, the Board approved a change in the project technical plan calling for the issuance of a Preliminary Views (PV) document, rather than an Exposure Draft, in the fourth quarter of 2004.
In arriving at its tentative conclusions, the GASB considered its own standards and those of others, including the FASB, the AICPA, the United Nations Intergovernmental Working Group of Experts on International Standards of Accounting, the Canadian Institute of Chartered Accountants, and the SEC.
On March 25, 2005 the GASB issued a Preliminary Views document, Accounting and Financial Reporting for Pollution Remediation Obligations. At the end of the three-month comment period the GASB held a public hearing on the PV. Nine testifiers provided testimony and 39 comment letters were received. At the August through November 2005 meetings, the Board discussed respondent comments and testimony on the PV and reached tentative conclusions on the issues raised. At the December 2005 meeting, the Board reviewed a draft of the Exposure Draft.
At the January 2006 meeting, the Board reviewed and approved for issuance the Exposure Draft, which was released on January 31, 2006 and had a three-month comment period. Forty-five comment letters were received.
Pollution Remediation Obligations—Recent Developments
Minutes of Meeting, November 6, 2006 Teleconference
The Board reviewed a ballot draft of a final Statement on pollution remediation obligations and suggested final minor editorial changes to the draft. The Board then unanimously approved issuance of Statement No. 49, Accounting and Financial Reporting for Pollution Remediation Obligations.
Minutes of Meeting, October 10–12, 2006
The Board reviewed a preballot draft of the proposed Statement, requested minor editorial changes, and authorized production of a ballot draft.
Minutes of Meeting, August 29-31, 2006
The Board continued redeliberations on the standards proposed in the Exposure Draft (ED) by reviewing respondent comments on the capitalization criteria and proposed accounting for recoveries. The Board tentatively approved forwarding these provisions to the Statement with certain changes and elaborations, including the following:
The Board also reconsidered the implementation date and tentatively decided that the final standard should be effective for periods beginning after December 15, 2007. This six-month delay will allow governments at least a year after the Statement is issued before they are required to measure beginning balances of pollution remediation liabilities.
Minutes of Meeting, July 11-13, 2006
The Board continued redeliberations on the standards proposed in the Exposure Draft (ED) by reviewing respondent comments on the obligating events, recognition benchmarks, expected cash flow measurement technique, effective date, and other miscellaneous issues. The Board tentatively approved forwarding these provisions to the Statement with the following changes and elaborations:
Minutes of Meeting, May 31–June 2, 2006
The Board commenced redeliberations on the standards proposed in the Exposure Draft (ED) by reviewing miscellaneous respondent comments. The Board tentatively approved the following changes:
The Board will continue discussing miscellaneous issues and then turn its attention to recognition issues at the next Board meeting.
Minutes of Meeting, January 24-26, 2006
The Board reviewed a ballot draft of an Exposure Draft on accounting for pollution remediation obligations and unanimously approved it for issuance.
Minutes of Meeting, December 13-15, 2005
The Board reviewed a preballot draft of the Exposure Draft (ED) and requested certain changes, including the following:
Minutes of Meeting, November 21, 2005 Teleconference
The Board continued discussing disclosure issues and tentatively decided that the remaining PV disclosures would be carried forward to the ED without modification. In addition, the Board tentatively decided that provisions of the proposed Statement supersede the disclosure requirements in FASB Statement No. 5, Accounting for Contingencies. Thus, no disclosure is required for reasonably possible pollution remediation contingencies unless one of the obligating events has occurred.
The Board then reviewed respondent comments regarding capitalization issues. In regard to the capitalization provisions, the Board tentatively decided the following:
Pollution remediation outlays generally should be reported as an expense when a liability is recognized as discussed in paragraphs A9 through A18. For example, a pump-and-treat system to be installed for pollution remediation generally would be reported as an expense. However, outlays to acquire land as part of a pollution remediation activity should be capitalized in the government-wide and proprietary fund statements when the land is acquired if the land has a present or future alternative use. In addition, pollution remediation outlays should be capitalized in the government-wide and proprietary fund statements when goods and services are acquired if acquired for any of the following circumstances:
Minutes of Meeting, November 1-3, 2005
At the previous meeting, the Board requested that staff research whether a more appropriate example than the currently referenced Resource Conservation and Recovery Act (RCRA) is available for use in the second obligating event. Staff reported that RCRA continues to be the most appropriate example, but that the second obligating event also could make reference to "similar state laws." The Board tentatively agreed with this addition.
The Board reviewed respondent comments to the Preliminary Views document covering benchmarks, current value, outlays, reporting (display), recoveries, and disclosures. The Board tentatively decided to move the benchmark provisions and reporting at current value forward to the Exposure Draft (ED) without modification, except for removing a reference to discounted present value in paragraph 20. With regard to the outlay provisions, the Board tentatively decided the following:
After reviewing respondent comments on reporting (display) issues, the Board tentatively decided to carry forward the provisions without modification. Regarding accounting for recoveries, the Board tentatively decided the following:
Consistent with paragraphs A16 through A18, estimated recoveries of pollution remediation outlays from insurers and other responsible parties or PRPs for which the government is performing remediation activities should reduce any pollution remediation expenditures when the recoveries are realized.
Lastly, the Board tentatively decided that PV disclosures be carried forward to the ED with the following changes:
For pollution remediation outlays liabilities, or portions thereof, that are not yet recognized because they are not reasonably estimable, governments should disclose a general description of the nature of the pollution remediation activities.
The Board will continue discussing disclosure issues and also address respondent comments on capitalization issues at the November teleconference.
Minutes of Meeting, September 20-22, 2005
The Board reviewed respondent comments covering obligating events and the expected cash flow technique and tentatively decided to move the obligating events forward to the Exposure Draft with the following changes:
The government is named, or evidence indicates that it will be named, by a regulator as a responsible party or potentially responsible party (PRP)10 for remediation, or as a government responsible for sharing costs.11
10The term potentially responsible party is used in the Superfund law, which provides that the federal government can hold parties potentially responsible for causing or contributing to pollution at a Superfund site. However, as used in this Statement, the term refers to a party that is similarly held by law as potentially responsible for pollution at any site. It is not limited to parties associated with Superfund sites.
11For example, Section 104(c)(3) of the Superfund law, as amended [42 U.S.C. 9604(c)(3)], requires, in part, that states pay or ensure payment of 10 percent of the cost of remedial action, and 100 percent of the cost of operations and maintenance, at sites that were privately owned or operated and for which no financially viable potentially responsible party can be found.
12For example, a government that sells polluted land may obligate itself to perform remediation activities as part of the agreement of sale. Also, a government may voluntarily sign a consent decree making itself a responsible party for cleanup activities.
The Basis for Conclusions will emphasize that pre-cleanup activities are excluded from the obligating event and will provide more appropriate examples of voluntarily commenced remediation that is legally required to be completed.
The Board noted that none of the respondents offered additional obligating events. Because of the specificity of pollution remediation problems, and other issues, the Board decided against trying to develop a broad recognition principle. However, the Exposure Draft will again include a question soliciting respondents in regard to any additional obligating events that should be included.
After discussing comments for and against the expected cash flow technique, the Board tentatively decided to carry it forward to the ED and to add a footnote explaining circumstances where state-developed cost averages may appropriately be used by governments. The Board instructed staff to fully address in the Basis for Conclusions the reasons that the Board is proposing the expected cash flow technique for pollution remediation and to address misunderstandings regarding subjectivity of the technique and other perceived weaknesses. In addition, the Basis for Conclusions will explain that programs that insure external parties for, for example, storage tank cleanup costs are not within the scope of the Statement.
Lastly, the Board considered and tentatively rejected discussing in the Exposure Draft the meaning of a reasonable estimate of a range.
Minutes of Meeting, August 9-11, 2005
The Board reviewed a summation of respondent comments on the Preliminary Views (PV) document for pollution remediation obligations and approved a project schedule calling for issuance of an Exposure Draft (ED) in January 2006. The Board commenced redeliberation of the provisions in the PV by reviewing respondent comments covering miscellaneous issues and tentatively made the following decisions:
The Board also discussed respondent comments on transition provisions and considered an effective date. Staff recommended retroactive application but noted that FASB Statement No. 154, Accounting Changes and Error Corrections, states that retroactive application is impracticable if it "requires assumptions about management’s intent in a prior period that cannot be independently substantiated" or "requires significant estimates of amounts, and it is impossible to distinguish objectively information about those estimates that . . . existed [and] . . . would have been available" in the earlier period. These provisions potentially impact application of the expected cash flow technique to measurements in prior periods. Accordingly, the Board tentatively agreed that governments that have sufficient objective and verifiable information to apply the expected cash flow technique to measurements in prior periods would apply the provisions of the proposed Statement retroactively for all such prior periods. Governments that do not have that information would apply the provisions of the proposed Statement as of the effective date. The Board also tentatively agreed that the effective date would be for periods beginning after June 15, 2007, with a clarification that pollution remediation liabilities would be measured (using the expected cash flow technique) at the beginning of that period to ensure that beginning net assets can be restated.
Minutes of Meetings, March 15 and April 5–7, 2005 Teleconference
The Board reviewed and unanimously approved the ballot draft of the Preliminary Views document with minor editorial changes for clarification. The document is scheduled to be posted to the GASB website on March 25.
Minutes of Meetings, January 31 and February 22–24, 2005 Teleconference
The Board reviewed a revised draft of a proposed Statement on accounting for pollution remediation obligations that will appear as an appendix to a Preliminary Views document on that topic. The Board tentatively approved the draft and requested staff to make certain editorial changes for clarification.
The Board reviewed a preballot draft of a Preliminary Views (PV) document covering accounting for pollution remediation obligations. The Board tentatively approved the drafts with certain editorial changes for clarification. The Board instructed staff to prepare a ballot draft for review at the Board’s teleconference meeting on March 15. The PV document is expected to be posted to the GASB website later in March.
Minutes of Meeting, January 11–13, 2005
The Board reviewed a draft of a Preliminary Views (PV) document covering accounting for pollution remediation obligations, including the latest draft of a proposed Statement that appears as an appendix to the PV. The Board tentatively approved the provisions presented in drafts and requested staff to make certain editorial changes for clarification.
Pollution Remediation Obligations—Major Tentative Decisions to Date
Statement No. 49, Accounting and Financial Reporting for Pollution Remediation Obligations, was approved in November 2006.