1.3 Asset Retirement Obligations
An ARO is defined in ASC 410-20-20 as an “obligation associated with the retirement of a tangible long-lived asset.” The obligation arises from a legal requirement (i.e., a permit, court order, authorization, or lease) when the construction or operation of an asset results in the need to complete an action upon retirement of the asset. An ARO exists when the obligation to perform the asset retirement activity is unconditional even though there may be uncertainty about whether and, if so, how and when the obligation will ultimately be settled. The following are examples of common AROs:
- Landfill closure and postclosure care.
- Mine reclamation.
- Nuclear decommissioning.
- Oil well plugging and abandonment.
- Abatement of asbestos-containing materials.
- Underground storage tank removal.
See Chapter 4 for additional guidance on accounting for AROs under U.S. GAAP.