Publications

Companies Grapple to Quantify Asset Retirement Obligations
02/22/2007

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.

 Download “Companies Grapple to Quantify Asset Retirement Obligations,” American Bar Association, Section of Business Law eSource Newsletter, Vol. 5, No. 8 (Feb. 2007).