1.2 Environmental Remediation Liabilities
An environmental remediation liability is a specific type of contingent
liability that arises, typically, from federal, state, and local environmental
regulations related to environmental contamination in soil, sediment, groundwater,
and surface water. These regulations often create a cleanup standard that defines
the level of contamination at or above which remedial action must be taken. For
example, governmental regulations may define the allowable amount of contamination
in drinking water before remediation is required.
In a manner consistent with the guidance in ASC 450-20, an environmental remediation liability should
be recognized when it is probable that such a liability has been incurred and the amount of the liability
can be reasonably estimated. The concepts of “probable” and “reasonably estimable” are based on the
framework outlined in ASC 450-20. ASC 410-30 provides additional guidance on how to apply these
concepts in the context of some of the unique characteristics of the environmental remediation statutes
and regulations in the United States.
An environmental remediation liability generally does not become fixed or determinable at a
specific point in time. Rather, the existence and amount of an environmental remediation liability
become determinable over a continuum of events and activities. That is, the activities associated
with environmental remediation often are dynamic and progress through stages in which both the
remediation requirements and the ability to estimate costs change. For example, a typical environmental
remediation process consists of (1) identifying entities that may have contributed to the contamination,
(2) performing a remedial investigation to identify possible remedies, (3) conducting a feasibility study
to evaluate the cost and viability of the various remedies identified, (4) completing the selected remedy,
and (5) operating and maintaining the site after completion of the remedy. Therefore, there is often
uncertainty about whether and, if so, when a legal obligation for environmental remediation has been
incurred.
Not all environmental remediation activities result in environmental obligations that are subject to the
guidance in ASC 410-30. Specifically, in accordance with ASC 410-30-15-3, the following transactions and
activities are outside the scope of ASC 410-30:
- “Environmental contamination incurred in the normal operation of a long-lived asset,” which is accounted for as an ARO under ASC 410-20. (See Section 1.4 for guidance on determining whether an environmental remediation liability is within the scope of ASC 410-20 or 410-30.)
- “Pollution control costs with respect to current operations or on accounting for costs of future site restoration or closure that are required upon the cessation of operations or sale of facilities.”
- “Environmental remediation actions that are undertaken at the sole discretion of management and that are not induced by the threat, by governments or other parties, of litigation or of assertion of a claim or an assessment.”
- “Recognizing liabilities of insurance entities for unpaid claims.”
- “Natural resource damages and toxic torts.”
- “Asset impairment issues.”
See Chapter 3 for additional guidance on accounting for environmental remediation obligations under U.S. GAAP.