GASB Exposure Draft Adds Pollution to Financial Statements

On the eve of the Association of Government Accountants’ (AGA) Fourth Annual Leadership Conference, the Government Accounting Standards Board (GASB) has issued an exposure draft identifying five key circumstances when pollution remediation must be accounted for.

“Today’s proposal intends to improve financial reporting by fostering more transparent and more consistent accounting that encourages comparability,” Robert Attmore, Chairman of the GASB said in announcing the exposure draft. “The proposed standard also enhances the ability of users to assess a government’s obligations by requiring both earlier reporting of obligations and recognition of obligations that may not have previously been reported.”


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Under the proposed standards, which build on those included in a Preliminary Views Draft released for comment in March 2005, a government would be required to estimate anticipated outlays for pollution remediation if:

  • The government is compelled to take pollution remediation action because of an imminent endangerment.
  • The government violates a pollution prevention related permit or license.
  • The government is named, or evidence indicates that it will be named, by a regulator as a responsible party or potentially responsible party (PRP) for remediation, or as a government responsible for sharing costs.
  • The government is named, or evidence indicates that it will be named, in a lawsuit to compel participation in pollution remediation.
  • The government commences or legally obligates itself to commence pollution remediation.

The proposed standards also indicate when pollution remediation would be capitalized, since most pollution remediation outlays don’t qualify for capitalization and are accrued as a liability. Outlays would be capitalized only if they are incurred:

  1. to prepare property for sale in anticipation of a sale
  2. to prepare property for use when the property was acquired with known or suspected pollution that was expected to be remediated
  3. to perform pollution remediation that restores a pollution-caused decline in service utility that was recognized as an asset impairment or
  4. to acquire property, plant, and equipment that have a future alternative use to remediation efforts.

Governments would be required to disclose the nature and source of pollution remediation obligations, the amount of the estimated liability, the methods and assumptions used in creating the liability estimate, the potential for changes to the estimate, and estimated recoveries that reduce the measurement of the liability under the standards proposed by the Board. A general description of the nature of pollution remediation activities would also be required for liabilities or components of liabilities that can’t be reasonably estimated.

Comments may be submitted, electronically to or by regular mail to Director of Research, Government Accounting Standards Board, 401 Merritt 7, P.O. Box 5116, Norwalk, CT 06856-5116, until May 1, 2006. If accepted the requirements described in this exposure draft will go into effect for financial statements for periods beginning after June 15, 2007.

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