4.20 AROs and Environmental Remediation Liabilities
There is diversity in practice in the determination of whether an ARO or an
environmental remediation liability is a monetary liability, a nonmonetary
liability, or outside the scope of ASC 830 altogether. There is a presumption that
such liabilities are denominated in an entity’s functional currency, unless the
entity has entered into a binding agreement denominated in a foreign currency to
settle the obligation or has a legal obligation to settle the obligation in a
foreign currency. Therefore, such obligations would be outside the scope of ASC 830.
Various views on whether an ARO is a monetary or nonmonetary liability were
discussed in the May 4, 2005, EITF Agenda Committee Report. Although the EITF Agenda
Committee ultimately decided not to add this issue to the EITF’s agenda, the above
view is consistent with View C from the report, which states, in part:
In the absence of a binding agreement or legal requirement to
settle the obligation in a specific foreign currency, the entity should assume
that the liability is denominated in its own functional currency and,
accordingly, the liability is not within the scope of Statement 52.
Although the discussion in the report was limited to AROs, the above guidance
would apply equally to environmental remediation liabilities and other contingent
liabilities when a legal requirement to settle in a specific currency is not
provided.