1.1 Introduction
An environmental remediation liability is based on a legal
obligation to remove or remediate pollution or contaminants from environmental media
such as soil, groundwater, sediment, and surface water. Environmental remediation
obligations can arise from the operation, retirement, closing, or mere ownership of
a facility (currently or in the past) at or near a contaminated site. The FASB’s
guidance on accounting for environmental remediation liabilities is codified in ASC
410-30.
The guidance in ASC 410-30 is based on federal environmental laws
and regulations in the United States. Specifically, the guidance is based largely on
the Comprehensive Environmental Response, Compensation, and Liability Act of 1980
(CERCLA or the “Superfund”) and the corrective action provisions of the Resource
Conservation and Recovery Act of 1976 (RCRA). Since certain aspects of the
accounting guidance on environmental remediation liabilities refer specifically to
both statutes, it is beneficial for entities to understand the requirements of each
of those laws before applying the accounting guidance in ASC 410-30. Accordingly,
this Roadmap’s discussion of environmental remediation liabilities is designed to
provide both an overview of the legal and regulatory framework of environmental
obligations, primarily in the United States (see Chapter 2), and a detailed explanation of the
FASB’s guidance on accounting for environmental remediation liabilities (see
Chapter 3).
An ARO is a legal or contractual obligation associated with the
retirement of a tangible long-lived asset that results from the acquisition,
construction, development, or normal operation of a long-lived asset. The FASB’s
guidance on accounting for AROs is codified in ASC 410-20.
In ASC 410-20, the guidance on AROs is predicated on the existence
of a legal obligation to retire an asset, which, in accordance with the definition
of a legal obligation in ASC 410-20-20, can arise from “an existing or enacted law,
statute, ordinance, or written or oral contract or by legal construction of a
contract under the doctrine of promissory estoppel.” However, unlike environmental
remediation liabilities, which are largely governed by comprehensive federal
statutes and regulations, AROs in the United States are largely the result of
contractual agreements as well as federal or state statutes and regulations and
typically arise as a result of asset-specific operating permits. Accordingly, our
discussion of AROs first addresses the accounting framework in ASC 410-20 (see
Chapter 4),
including relevant interpretive accounting and financial reporting guidance. The
Roadmap then gives an overview of certain legal and regulatory requirements and
certain specific accounting considerations related to various industry- and
asset-specific AROs (see Chapter
5).
In Chapters 2 and
5 of this Roadmap, much of the content
related to environmental remediation liabilities and AROs is
adapted from U.S. Environmental Protection Agency (EPA) and
other environmental literature. There are numerous links in
the text, as well as a compilation of environmental
literature in Appendix B, to direct
you to the various sources should you wish to explore the
material in greater detail.