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Business and Policy Areas
Business and Policy Areas

How Are Public Institutions Handling Asset Retirement Obligations?

December 12, 2013

The Governmental Accounting Standards Board (GASB) has begun researching the prevalence of asset retirement obligations (AROs) and current financial accounting and reporting practice by governmental entities, such as public colleges and universities. AROs represent retirement obligations associated with long-lived assets; such obligations can be particularly significant for environmental remediation work that may be necessary to restore a property.

Because GASB literature does not currently provide specific guidance for dealing with AROs, pre-agenda research has begun to determine if the GASB should add AROs to its technical agenda. Exploration on this topic would identify the types of asset retirement obligations currently encountered in the government environment and attempt to quantify the significance of those events.

The main objective of the pre-agenda work is to:

  1. Research the various types of asset retirement obligations currently encountered in practice.
  2. Determine whether current accounting and reporting requirements are sufficient or if additional guidance needs to be developed for such obligations.

The guidance for recognizing and measuring certain types of AROs appears in GASB Statement No. 18, "Accounting for Municipal Solid Waste Landfill Closure and Post-closure Care Costs," which was issued 20 years ago (1993). However, Statement 18 does not apply to the retirement of any other public sector capital assets, such as nuclear power plants or sewage treatment facilities. Although GASB Statement No. 49, "Accounting and Financial Reporting for Pollution Remediation Obligations," would apply to a government's obligation to clean up pollution associated with non-landfill public capital assets, it provides guidance only for pollution that is evident.

Because AROs can be complex or associated with actions to prevent pollution from occurring, rather than remediate pollution after the fact, the GASB wonders if governmental entities, such as public institutions, follow standards considered as "other accounting literature.". These would include FASB Statement No. 143, "Accounting for Asset Retirement Obligations" (now ASC 410, Asset Retirement and Environmental Obligations). GASB Statement No. 55, "The Hierarchy of Generally Accepted Accounting Principles for State and Local Governments (GAAP hierarchy)," allows governments to apply FASB literature issued after November 30, 1989, provided GASB literature does not directly address an issue and the FASB literature does not conflict with or contradict GASB standards.

To assist the GASB, NACUBO would like to hear from public institutions that have dealt with AROs. Please contact Sue Menditto, director of accounting policy, or send an email to Julian Su of the GASB by January. 


Sue Menditto
Director, Accounting Policy