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Business and Policy Areas
Business and Policy Areas

GASB's New Standard Covers Asset Retirement Obligations

January 5, 2017

In an effort to standardize financial reporting when laws govern how certain assets are retired from use, the Governmental Accounting Standards Board recently issued Statement No. 83, “Certain Asset Retirement Obligations.” Asset Retirement Obligations (AROs) arise from laws, regulations, and court judgments that require state, local, and special purpose governments (such as public institutions) to retire tangible capital assets.

The new standard requires public institutions to estimate and record a liability for the current value of an ARO and include related disclosures in the notes to the financial statements. Examples of AROs include decommissioning nuclear reactors, removing and disposing wind turbines in wind farms, dismantling and removing sewage treatment plants, and removing and disposing of X-ray machines.

Statement 83 is effective for periods beginning after June 15, 2018—FY19 for the vast majority of public colleges and universities. Earlier application is encouraged. The provisions of this statement are to be applied retroactively as a restatement of beginning net position for the earliest financial statement period presented.

Accounting Requirements

An accounting entry is required when a liability has been incurred and can be reasonably estimated. A liability is incurred when both an external obligating event and an internal obligating event have occurred. An external obligating event is the legal requirement. An internal obligating event is an action taken by a public institution related to the retirement or sale of the asset. The amount recorded is the current value, which is the amount that would be paid if all equipment, facilities, and services included in the estimate were acquired at the end of the current reporting period.

Subsequent Measurement

Following the initial measurement, a government is required to adjust the current value of the ARO for:

  1. General inflation or deflation.
  2. Any relevant factors that may significantly increase or decrease the estimated outlays associated with the ARO. Examples of relevant factors include:
    a. Increases or decreases in prices not associated with inflation or deflation.
    b. Changes in technology.
    c. Changes in laws regulations, contracts, or court judgments associated with the ARO.
    d. Changes in the equipment, facilities, or services that will be used to meet the obligations associated with retiring the tangible capital asset.

Financial Reporting

The required disclosures for governments with AROs are described in paragraphs 27 and 28 of the Statement. Institutions must describe the asset and its estimated useful life, the methods and assumptions used to measure liabilities, and how legal requirements affect funding or surety related to the asset’s final disposition.

Statement 83 is available for download from GASB’s website. NACUBO member institutions can read more about the new standard in the Financial Accounting and Reporting Manual (FARM), a free online service for all institutional members. (From NACUBO’s home page, go to MY NACUBO, online subscriptions, and select FARM.)


Sue Menditto
Director, Accounting Policy