GASB has issued guidance for state and local governments addressing liabilities known as “asset retirement obligations.”
An asset retirement obligation (ARO) is a legally enforceable liability associated with the retirement of a tangible capital asset. GASB Statement No. 83, Certain Asset Retirement Obligations, establishes guidance for determining the timing and pattern of recognition for liabilities and corresponding deferred outflow of resources related to AROs.
Existing laws and regulations require state and local governments to take specific actions to retire certain capital assets, such as the decommissioning of nuclear reactors and the dismantling and removal of sewage treatment plants. Other obligations to retire certain capital assets may arise from contracts or court judgments.
“This Statement establishes clear and consistent accounting and financial reporting guidance for certain asset retirement obligations, where little guidance existed before for state and local governments,” said GASB Chair David A. Vaudt. “This will result in increased certainty in application for governments, enhanced consistency in financial reporting, and more meaningful information for users of financial statements.”
Under Statement 83, a government that has legal obligations to perform future asset retirement activities related to its tangible capital assets is required to recognize a liability and a corresponding deferred outflow of resources. The guidance also identifies the circumstances that trigger recognition of these transactions.
The Statement requires the measurement of an ARO to be based on the best estimate of the current value of outlays expected to be incurred. The deferred outflow of resources associated with an ARO will be measured at the amount of the corresponding liability upon initial measurement and generally recognized as an expense during the reporting periods that the asset provides service.
Disclosure requirements include a general description of the ARO and associated tangible capital assets, the source of the obligation to retire the assets, the methods and assumptions used to measure the liability, and other relevant information.
The requirements of Statement 83 are effective for reporting periods beginning after June 15, 2018, with earlier application encouraged.
The full text of Statement 83, Certain Asset Retirement Obligations, is available at www.gasb.org.