United States

Accounting for certain asset retirement obligations

FINANCIAL REPORTING INSIGHTS  | 

Existing laws and regulations require state and local governments to take specific actions to retire certain capital assets, such as the decommissioning of nuclear reactors and the dismantling and removal of sewage treatment plants. Other obligations to retire certain capital assets may arise for contracts or court judgments. The Governmental Accounting Standards Board recently issued Statement No. 83, Certain Asset Retirement Obligations, which requires a government that has legal obligations to perform future asset retirement activities related to its tangible capital assets to recognize a liability and a corresponding deferred outflow of resources. Statement No. 83 requires that recognition occur when the liability is both incurred and reasonably estimable. The measurement of the liability for an asset retirement obligation should be based on the best estimate of the current value of outlays expected to be incurred.

Statement No. 83 requires the current value of the liability for a government’s asset retirement obligations to be adjusted for the effects of general inflation or deflation at least annually. In addition, it requires a government to evaluate all relevant factors at least annually to determine whether the effects of one or more of the factors are expected to significantly change the estimated asset retirement outlays. Statement No. 83 also requires disclosures of information about the nature of a government’s asset retirement obligations, the methods and assumptions used for the estimates of the liabilities, and the estimated remaining useful life of the associated tangible capital assets. If an asset retirement obligation (or portions thereof) has been incurred by a government but is not yet recognized because it is not reasonably estimable, the government is required to disclose that fact and the reasons therefor.

Statement No. 83 is effective for reporting periods beginning after June 15, 2018.