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GASB Sets Guidance on Asset Retirement Obligations

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Dec 8th 2016
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New guidance issued by the Governmental Accounting Standards Board (GASB) on Dec. 7 establishes uniform accounting and financial reporting requirements for asset retirement obligations, a legally enforceable liability associated with the retirement of a tangible capital asset.

GASB Statement No. 83, Certain Asset Retirement Obligations, sets “clear and consistent accounting and financial reporting guidance for certain asset retirement obligations, where little guidance existed before for state and local governments,” GASB Chairman David Vaudt said in a written statement. “This will result in increased certainty in application for governments, enhanced consistency in financial reporting, and more meaningful information for users of financial statements.”

The new standard presents guidance for determining the timing and pattern of recognition for liabilities and corresponding deferred outflow of resources related to asset retirement obligations.

It requires that recognition occur when the liability is both incurred and reasonably estimable.

“The determination of when the liability is incurred should be based on the occurrence of external laws, regulations, contracts, or court judgments, together with the occurrence of an internal event that obligates a government to perform asset retirement activities,” Statement 83 says. “Laws and regulations may require governments to take specific actions to retire certain tangible capital assets, such as decommissioning nuclear reactors and dismantling and removing sewage treatment plants. Other obligations to retire tangible capital assets may arise from contracts or court judgments. Internal obligating events include the occurrence of contamination, placing into operation a tangible capital asset that is required to be retired, abandoning a tangible capital asset before it is placed into operation, or acquiring a tangible capital asset that has an existing asset retirement obligation.”

The guidance requires the measurement of an asset retirement obligation to be based on the best estimate of the current value of outlays expected to be incurred.

The deferred outflow of resources associated with an asset retirement obligation will be measured at the amount of the corresponding liability upon initial measurement and generally recognized as an expense during the reporting periods that the asset provides service, according to the GASB.

Disclosure requirements include a general description of the asset retirement obligation and associated tangible capital assets, the source of the obligation to retire the assets, the methods and assumptions used to measure the liability, and other relevant information.

The requirements of Statement 83 are effective for reporting periods beginning after June 15, 2018. Earlier application is encouraged.

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