Press & News

Andrew Perellis Quoted in Compliance Week
08/29/2006

The article "Short On Clarity, FIN 47 Sows Confusion" in the August 29, 2006 issue of Compliance Week notes that "The intent of the Financial Accounting Standards Board was clear: to clarify the rules and create more consistency in how companies account for asset retirement obligations. The outcome, however, could not be murkier. With Financial Interpretation No. 47, FASB wanted to delineate how companies should account for any future legal obligations they might face to dispose of assets carried on their books—principally, cleaning up environmentally damaged properties or ridding themselves of hazardous materials. Instead, nine months after FIN 47 went into effect, a wide range of interpretations by attorneys, accountants, engineers, environmental consultants and many others is leaving a wake of confusion. The differences are evident in wildly disparate reporting of FIN 47 costs from otherwise very similar businesses. In theory, two companies of comparable size and industry should report roughly the same asset retirement liabilities. A study by the Corporate Executive Board examining filings made earlier this year, however, shows that companies’ interpretations of FIN 47 and their estimates of its costs are all over the map. FASB issued FIN 47 in early 2005 to clarify FASB’s intent in Financial Accounting Standard No. 143, Accounting for Asset Retirement Obligations; it took effect at the start of this year. FIN 47 requires companies to look more carefully at assets they likely will carry on their books for a long period of time, examine any legal obligations they may have with the eventual disposal of those assets, and report a current financial liability to meet those future legal obligations. FIN 47 encompasses a wide variety of assets and prospective obligations, such as environmental rules that might come into play when closing a plant or selling a piece of real estate, or contractual obligations when turning in a leased piece of property or equipment. A host of sticky subjects such as asbestos, treated utility poles, underground storage tanks fall under the rule’s domain."

"If FIN 47’s intent was to clarify, why the discrepancy in interpretation? The reasons vary almost as widely as the figures. Foremost, the issues involved cut across numerous disciplines in a business, requiring judgment from professionals and executives with different perspectives. “I won’t say it’s a tension, but it’s a very dynamic process with a particular company, with their financial accounting firm, their environmental managers, and their attorneys,” says Andrew Perellis, a partner in the environmental practice of law firm Seyfarth Shaw. “There’s an integration of analysis that takes place in order to get to the right result.” . . . Perellis doesn’t interpret FIN 47 to require companies to investigate whether tanks might have caused contamination, but the existence of historical data (as exists for underground storage tanks) could muddy the issue. “Assume I have 100 storage tanks and although they’re not designed to leak, it’s possible they can leak,” he says. “If I’m managing a large portfolio of tanks, should I assume a certain percentage of those tanks would leak? That’s something to consider.”