This page describes complex accounting for environmental and other obligations associated with tangible assets.
Local, state and federal environmental regulations may require companies to perform remediation and site restoration activities based on historical or current operations, and impacts from acquisitions.
Companies may also incur Asset Retirement Obligations (AROs): the legal obligations associated with the retirement of long-lived assets (e.g. facilities, structures, equipment, land disturbance, highly customized installations, etc.) regardless of environmental impact.
Environmental exposures and AROs can impact a Company’s long-term profitability and must be appropriately reflected in financial statements. They can be especially significant in certain sectors, including but not limited to:
The practice of applying accounting guidance related to environmental liabilities and AROs in financial statements is extremely diverse, subjective and challenging— especially given the need to integrate engineering professionals in the estimation process.
Review of recent SEC comment letters show there are certain technical issues related to environmental liabilities and AROs that often attract regulatory scrutiny. These include: