Andy Perellis Published in the American Bar Association Section of Business Law eSource Newsletter
02/27/2007
The February 2007 issue of eSource includes Andy's article, "Companies Grapple to Quantify Asset Retirement Obligations," that notes "A review of recent public reporting disclosures, submitted by companies in an attempt to comply with a financial accounting interpretation issued last year, suggests that substantial confusion exists in the marketplace. Under applicable accounting principles, a company is to accrue the costs associated with an asset retirement during the life of the asset. Financial Accounting Standard 143 says so, and it has been around for a number of years. Even so, most publicly traded companies failed to comply, contending that uncertainty as to the timing of the asset retirement, or uncertainty in the cost of the retirement obligation, precluded them from quantifying the liability. In response, the Financial Accounting Standards Board issued Financial Interpretation 47 (FIN 47). That interpretation, in a nut-shell, requires companies to report liabilities now, with uncertainty as to timing or amount to be built into the estimate of the obligation." He cautions: "Compliance with FAS 143 and FIN 47 presents a pitfall for the uninformed. The SEC is concerned with proper reporting of environmental obligations, and shareholder suits for inadequate and improper reporting are in vogue. It is a classic case of a client not realizing the magnitude of risk presented by a seemingly routine task typically handled at a relatively low level of responsibility within the company. Ask your client what he is doing to accurately report and quantify asset retirement obligations. Then, assemble a qualified team to aid in the evaluation. That’s the type of value-added service your client expects, and deserves.
