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Business and Policy Areas
Business and Policy Areas

GASB Addresses Asset Retirement Obligations and Seeks Field Testers

January 27, 2016

In a recent Exposure Draft, the Governmental Accounting Standards Board (GASB) proposed changes that could affect colleges' and universities' liability recognition related to certain aging facilities or types of infrastructure—when retired. For public institutions planning to install capital assets with known environmental consequences (e.g., wind turbines or nuclear power plants), liability recognition may also be required.

Existing laws, regulations, contracts, or court judgments can lead to ongoing obligations when certain types of tangible capital assets are retired. This is especially true when ongoing activities are needed (or known to be necessary) to address environmental health and safety.

Enduring liabilities related to retiring certain assets are known as "asset retirement obligations" (ARO). Asset retirement means permanently removing an asset from service. Because related site restoration can be significant and related accounting and financial reporting is not always consistent, GASB's ARO project was launched in 2014 in an effort to mitigate governmental reliance on combinations of GASB literature and Financial Accounting Standards Board guidance.  

Because legal obligations are deemed to exist as a result of relevant laws or regulations (federal, state, or local), internal obligating events must be carefully considered to determine the timing of liability recognition. Since many laws and regulations exist to mitigate environmental pollution, toxicity, or contamination and to ensure public safety, the very act of installing or purchasing certain types of capital assets should trigger internal evaluations. Examples cited in the Exposure Draft consider known patterns for certain types of assets and include:

  • Coal strip mines
  • Wind turbines
  • Sewage treatment facilities

However, the above list could easily be expanded to include nuclear power reactors, underground gasoline tanks, water and fuel delivery infrastructure, or any capital asset containing known environmental consequences. 

Under the proposed guidance, public colleges and universities would not have to consider possible future (conditional) AROs for older buildings containing asbestos that are currently in service. However, permanent retirement of an aged facility (containing asbestos or any other known contaminant) from service could trigger liability recognition—or at least an estimate assessment—because of relevant laws governing the contaminants. 

As part of the proposal, a government that has legal obligations (e.g. a law exists) and internal indications (e.g. a detailed retirement plan) of future asset retirement activities related to its tangible capital assets would be required to:

  • Measure a liability related to the ARO.
    • Use all available evidence. (Probability estimates, potential outcomes, and weighting can be employed.)
    • Base the estimate on the current value of expected cash outlays.
  • Initially recognize a deferred outflow of resources associated with the corresponding liability.
  • Annually remeasure the current value of the ARO for the effects of inflation or deflation.
  • In subsequent reporting periods, recognize a reduction of the deferred outflow of resources as an expense in a systematic and rational manner over the estimated useful life of either the capital asset or remediation period.
  • Disclose information about the ARO in the notes to the financial statements.

The requirements of this proposed statement would be effective for reporting periods beginning after December 15, 2017-FY19 for the vast majority of public institutions. Comments on the proposal are due by March 31.

GASB is also looking for field test participants. A field test is a good way to assess the practicality of proposed guidance and relay to GASB staff any concerns and questions-potentially alerting GASB to issues during a comment period. If you are willing to participate or have any questions, please contact project team member Brett Riley at or lead project manager Jialan Su at


Sue Menditto
Director, Accounting Policy