3.1 Introduction
The primary objective of ASC 410-30 is to provide accounting guidance on
environmental remediation liabilities arising from pollution or contamination caused by
some past act or event. The recognition and disclosure guidance in ASC 410-30 is
generally based on the framework outlined in ASC 450-20, which requires the recognition
of a loss when (1) it is probable that a loss has been incurred and (2) the amount of
the loss can be reasonably estimated. However, ASC 410-30 provides incremental and
interpretive guidance on how to apply these recognition criteria specifically to
environmental obligations in the context of the legal framework established in the
United States. That is, while ASC 450-20 broadly addresses the accounting for all loss
contingencies, ASC 410-30 provides additional guidance on accounting for a subset of
loss contingencies (specifically, environmental remediation liabilities), as illustrated
below.
ASC 410-30 provides guidance on measuring an estimated environmental
remediation liability, including which costs to include in the estimate, how to consider
the effects of future developments, and how to allocate the liability among PRPs. In
addition, ASC 410-30 addresses the accounting for potential recoveries of environmental
losses from insurance providers or other third parties. However, as discussed in
Chapter 2, CERCLA imposes a liability scheme that differs from
traditional common law and statutory liability schemes. Specifically, a liability under
CERCLA is joint and several; therefore, each PRP is potentially liable for the entire
cost of cleanup. This liability scheme poses challenges to the application of ASC 410-30
when measuring a PRP’s allocable share of an environmental remediation liability once
the recognition criteria have been met.
Several years can elapse from the time a reporting entity is named as a
PRP to when the environmental remediation process is completed. Because of the amount of
time required to remediate a site, the complexity of the legal framework, and the number
of parties that may be responsible for paying the costs related to a site, it can be
difficult to determine when to recognize and how to measure an environmental remediation
liability.
The remainder of this chapter provides an in-depth discussion of the
recognition and measurement guidance in ASC 410-30, as well as examples that illustrate
how the concepts discussed are commonly applied in practice.