Chapter 3 — Accounting for Environmental Obligations

3.7 Disclosure Considerations

3.7.1 Interaction of ASC 410-30 With ASC 450-20 and ASC 275

ASC 410-30-50-5 states that ASC 450-20 provides the primary disclosure requirements for environmental remediation loss contingencies. In addition, ASC 410-30-50-6 states that the incremental disclosure requirements of ASC 275 also apply to environmental remediation liabilities. The table below summarizes the application of the disclosure requirements of ASC 450-20 and ASC 275 to environmental liabilities.

Disclosures Related to Loss Contingencies
Possibility That a Loss Has Been Incurred	Ability to Estimate a Loss	Disclosure Requirements of ASC 450-20 and ASC 275
Reasonably possible	May or may not be reasonably estimable	Disclose all of the following: “The nature of the contingency” (i.e., a description of the environmental remediation obligation). See ASC 450-20-50-4(a). “An estimate of the possible loss or range of loss or a statement that such an estimate cannot be made.” See ASC 450-20-50-4(b). A statement indicating that it is at least reasonably possible that the estimated amount of the loss will change in the near term if (1) it is at least reasonably possible that the estimate will change in the near term and (2) the effect of the change would be material. See ASC 275-10-50-8.
Probable	Not reasonably estimable	Disclose both of the following: “The nature of the contingency” (i.e., a description of the environmental remediation obligation). See ASC 450-20-50-4(a). A statement that the amount of the loss cannot be reasonably estimated. See ASC 450-20-50-4(b).
Probable	Reasonably estimable	Disclose all of the following: “The nature of the contingency” (i.e., a description of the environmental remediation obligation). “The term reserve shall not be used for an accrual made pursuant to paragraph 450-20-25-2; that term is limited to an amount of unidentified or unsegregated assets held or retained for a specific purpose.” See ASC 450-20-50-4(a) and ASC 450-20-50-1. The total amount of the loss that has been recognized (if such disclosure is required to ensure that the financial statements are not misleading). See ASC 450-20-50-1. A statement indicating that it is at least reasonably possible that the estimated amount of the loss will change in the near term if (1) it is at least reasonably possible that the estimate will change in the near term and (2) the effect of the change would be material. See ASC 275-10-50-8. The exposure to loss in excess of the amount accrued under ASC 410-30 if there is at least a reasonable possibility that such excess loss may have been incurred. The disclosure should include both of the following: “The nature of the contingency.” “An estimate of the possible loss or range of loss or a statement that such an estimate cannot be made.” See ASC 450-20-50-3 and 50-4.

In addition, an entity should evaluate disclosure requirements related to losses arising after the date of the financial statements. ASC 855-10-50-2 requires an entity to disclose a nonrecognized subsequent event if it is “of such a nature that [it] must be disclosed to keep the financial statements from being misleading.” Although an entity must use judgment to determine whether its financial statements would be misleading without disclosure of a given nonrecognized subsequent event, it would seem prudent for an entity to disclose any reasonably possible nonrecognized loss contingency that could materially affect its financial position, results of operations, or trend of operations. If such disclosure is necessary, it should include both of the following:

The nature of the contingency (i.e., a description of the environmental remediation obligation). See ASC 450-20-50-9(a).
An estimate of the possible loss exposure or a statement that such an estimate cannot be made. See ASC 450-20-50-9(b).

For further discussion of disclosure considerations under ASC 450-20 and ASC 275, see Section 2.8.1 of Deloitte’s Roadmap Contingencies, Loss Recoveries, and Guarantees.

3.7.2 Other Required Disclosures Under ASC 410-30

ASC 410-30 requires certain disclosures in addition to the applicable disclosures prescribed by ASC 450-20 and ASC 275. Those additional required disclosures are summarized in the table below.

Topic	Other Required Disclosures Under ASC 410-30
Unasserted claims	“Whether notification by regulatory authorities . . . constitutes the assertion of a claim is a matter of legal determination. If an entity concludes that it has no current legal obligation to remediate a situation of probable or possible environmental impact, then . . . no disclosure is required. However, if an entity is required by existing laws and regulations to report the release of hazardous substances and to begin a remediation study or if assertion of a claim is deemed probable, the matter would represent a loss contingency subject to the disclosure provisions of paragraphs 450-20-50-3 through 50-4, regardless of a lack of involvement by a regulatory agency.” See ASC 410-30-50-13.
Discounted or undiscounted liabilities	Disclose all of the following: Whether environmental liabilities are measured on a discounted basis. See ASC 410-30-50-4 and ASC 410-30-50-7. If any portion of a recognized environmental remediation liability is discounted: The “undiscounted amount of the obligation.” The “discount rate used in the present-value determinations.” See ASC 410-30-50-7.

Topic

Other Required Disclosures Under ASC 410-30

Unasserted claims

“Whether notification by regulatory authorities . . . constitutes the assertion of a claim is a matter of legal determination. If an entity concludes that it has no current legal obligation to remediate a situation of probable or possible environmental impact, then . . . no disclosure is required. However, if an entity is required by existing laws and regulations to report the release of hazardous substances and to begin a remediation study or if assertion of a claim is deemed probable, the matter would represent a loss contingency subject to the disclosure provisions of paragraphs 450-20-50-3 through 50-4, regardless of a lack of involvement by a regulatory agency.” See ASC 410-30-50-13.

Discounted or undiscounted liabilities

Disclose all of the following:

Whether environmental liabilities are measured on a discounted basis. See ASC 410-30-50-4 and ASC 410-30-50-7.
If any portion of a recognized environmental remediation liability is discounted:
- The “undiscounted amount of the obligation.”
- The “discount rate used in the present-value determinations.” See ASC 410-30-50-7.

SEC Considerations

The requirements of ASC 410-30-50-7 to disclose the undiscounted amount of an environmental remediation liability and the discount rate used are consistent with the SEC staff’s interpretive response to Question 1 of SAB Topic 5.Y (codified in ASC 450-20-S99-1). However, that interpretive response also requires disclosure of both of the following:

“[E]xpected payments for each of the five succeeding years and the aggregate amount thereafter.”
A “reconciliation of the expected aggregate undiscounted amount to amounts recognized in the statements of financial position.”

In addition, the interpretive response to Question 1 of SAB Topic 5.Y states that “[m]aterial changes in the expected aggregate amount since the prior balance sheet date, other than those resulting from pay-down of the obligation, should be explained.”

See Section 3.7.4 for a discussion of additional SEC disclosure requirements related to environmental obligations.

Connecting the Dots

ASC 410-30-50-14 acknowledges that in certain situations, the estimated total unrecognized exposure to environmental remediation loss contingencies may not have a material adverse effect on the consolidated financial statements. In such situations, it may be appropriate for a reporting entity to provide a disclosure that addresses this exposure in total. ASC 410-30-50-14 provides the following example of such a disclosure:

[M]anagement believes that the outcome of these uncertainties should not have [or “may have”] a material adverse effect on the financial condition, cash flows, or operating results of the entity.

However, as noted in ASC 410-30-50-15, this type of disclosure should not be considered a substitute for any of the required disclosures discussed above.

3.7.3 Disclosures That Are Encouraged but Not Required

Because of the pervasive uncertainty associated with many environmental remediation obligations and the significant judgment required in accounting for such obligations, certain additional disclosures are encouraged, but not required, under ASC 410-30-50. Those encouraged disclosures are summarized in the table below.

Topic	Disclosures Encouraged, but Not Required, Under ASC 410-30-50
Environmental liabilities — general	The “event, situation, or set of circumstances that generally triggers recognition of loss contingencies that arise out of the entity’s environmental remediation-related obligations (for example, during or upon completion of the feasibility study).” See ASC 410-30-50-8. “The estimated time frame of disbursements for recorded amounts if expenditures are expected to continue over the long term.” See ASC 410-30-50-10(a). “If an estimate of the probable or reasonably possible loss or range of loss cannot be made, the reasons why it cannot be made.” See ASC 410-30-50-10(c). The “estimated time frame for resolution of the uncertainty as to the amount of the loss.” See ASC 410-30-50-11. “The amount recognized [in the income statement] for environmental remediation loss contingencies in each period.” See ASC 410-30-50-12(a). “The income statement caption in which environmental remediation costs . . . are included.” See ASC 410-30-50-12(c).
Environmental liabilities — site-specific	If information related to an individual site is relevant to the assessment of the reporting entity’s statement of financial position, the following disclosures under ASC 410-30-50-10(d) are encouraged with respect to the site: “The total amount accrued for the site.” “The nature of any reasonably possible loss contingency or additional loss, and an estimate of the possible loss or the fact that an estimate cannot be made and the reasons why it cannot be made.” “Whether other [PRPs] are involved and the entity’s estimated share of the obligation.” “The status of regulatory proceedings.” “The estimated time frame for resolution of the contingency.”
Cost recoveries	The reporting entity’s “policy concerning the timing of recognition of recoveries.” See ASC 410-30-50-8. “The estimated time frame for realization of recognized probable recoveries, if realization is not expected in the near term.” See ASC 410-30-50-10(b). “The amount of any recovery from third parties that is credited to environmental remediation costs in each period.” See ASC 410-30-50-12(b). “The income statement caption in which . . . credits [related to third-party recoveries] are included.” See ASC 410-30-50-12(c).

3.7.4 SEC Disclosure Requirements

While the guidance in ASC 410-30-50 only encourages disclosure of the items described in the previous section, the interpretive response to Question 2 of SAB Topic 5.Y indicates that the SEC staff typically requires disclosure of these items to “prevent the financial statements from being misleading and to inform readers fully regarding the range of reasonably possible outcomes that could have a material effect on the registrant’s financial condition, results of operations, or liquidity.”

That interpretive response also states that in addition to the disclosures required under ASC 410-30 and ASC 450-20, other disclosures may be necessary, including the following:

“Circumstances affecting the reliability and precision of loss estimates.”
“The extent to which unasserted claims are reflected in any accrual or may affect the magnitude of the contingency.”
“Uncertainties with respect to joint and several liability that may affect the magnitude of the contingency, including disclosure of the aggregate expected cost to remediate particular sites that are individually material if the likelihood of contribution by the other significant parties has not been established.”
“Disclosure of the nature and terms of cost-sharing arrangements with other [PRPs].”
“The extent to which disclosed but unrecognized contingent losses are expected to be recoverable through insurance, indemnification arrangements, or other sources, with disclosure of any material limitations of that recovery.”
“Uncertainties regarding the legal sufficiency of insurance claims or solvency of insurance carriers.”
“The time frame over which the accrued or presently unrecognized amounts may be paid out.”
“Material components of the accruals and significant assumptions underlying estimates.”

Further, the interpretive response to Question 2 of SAB Topic 5.Y cautions registrants that a disclosure that “the contingency is not expected to be material does not satisfy the requirements of FASB ASC Topic 450 if there is at least a reasonable possibility that a loss exceeding amounts already recognized may have been incurred and the amount of that additional loss would be material to a decision to buy or sell the registrant’s securities. In that case, the registrant must either (a) disclose the estimated additional loss, or range of loss, that is reasonably possible, or (b) state that such an estimate cannot be made.”

In its interpretive response to Question 3 of SAB Topic 5.Y, the SEC staff addresses disclosures that may be required outside the financial statements and states, in part:

Registrants should consider the requirements of Items 101 (Description of Business), 103 (Legal Proceedings), and 303 (MD&A) of Regulation S-K. The Commission has issued interpretive releases that provide additional guidance with respect to these items. In a 1989 interpretive release, the Commission noted that the availability of insurance, indemnification, or contribution may be relevant in determining whether the criteria for disclosure have been met with respect to a contingency. The registrant’s assessment in this regard should include consideration of facts such as the periods in which claims for recovery may be realized, the likelihood that the claims may be contested, and the financial condition of third parties from which recovery is expected.

Disclosures made pursuant to the guidance identified in the preceding paragraph should be sufficiently specific to enable a reader to understand the scope of the contingencies affecting the registrant. For example, a registrant’s discussion of historical and anticipated environmental expenditures should, to the extent material, describe separately (a) recurring costs associated with managing hazardous substances and pollution in on-going operations, (b) capital expenditures to limit or monitor hazardous substances or pollutants, (c) mandated expenditures to remediate previously contaminated sites, and (d) other infrequent or non-recurring clean-up expenditures that can be anticipated but which are not required in the present circumstances. Disaggregated disclosure that describes accrued and reasonably likely losses with respect to particular environmental sites that are individually material may be necessary for a full understanding of these contingencies. Also, if management’s investigation of potential liability and remediation cost is at different stages with respect to individual sites, the consequences of this with respect to amounts accrued and disclosed should be discussed. [Footnotes omitted]

SEC Regulation S-K, Item 103, requires disclosure of any material pending legal proceedings, including “the name of the court or agency in which the proceedings are pending, the date instituted, the principal parties thereto, a description of the factual basis alleged to underlie the proceeding and the relief sought.” Similar information is to be included for “any such proceedings known to be contemplated by governmental authorities.”

Connecting the Dots

On August 26, 2020, the SEC issued a final rule amending Item 103. The final rule, which became effective on November 9, 2020, permits the use of hyperlinks or cross-references to disclosures about legal proceedings that were included elsewhere in the document provided that the hyperlink or cross-reference does not make reference from such financial statements to other areas outside of the financial statements (e.g., Item 103). The final rule also updates the disclosure threshold for environmental proceedings. Before the amendment, Instruction 5.C to Item 103 required disclosure of an environmental proceeding to which the government was a party if the proceeding was expected to result in sanctions of $100,000 or more. The final rule increases the quantitative threshold to $300,000 but also permits the registrant to elect an alternative higher threshold if the registrant determines that such threshold is more reasonably designed to result in the disclosure of material environmental proceedings. If so, the alternative higher threshold is limited to the lesser of $1 million or 1 percent of the current assets of the registrant and its subsidiaries on a consolidated basis. A registrant must disclose this alternative threshold in each annual and quarterly report.

On September 22, 2021, the SEC’s Division of Corporation Finance publicly released a sample letter that highlights the types of comments it may issue to public companies regarding climate-related disclosures, primarily focusing on disclosures in the business, risk factors, and MD&A sections of filings. The sample comments, which the SEC published before publicly releasing any company-specific comments, serve as an early warning to registrants that have not received any company-specific comments to date. For more information about SEC communications regarding climate-related matters and other environmental, social, and governance (ESG) disclosures, see Deloitte’s September 27, 2021, Heads Up.

On March 21, 2022, the SEC issued a proposed rule that would enhance and standardize the climate-related disclosures provided by public companies. In the proposing release, the SEC noted that certain aspects of the disclosures registrants would be required to provide are similar to those that some companies provide under existing disclosure frameworks and standards, such as those recommended by the Financial Stability Board’s Task Force on Climate-Related Financial Disclosures and the Greenhouse Gas Protocol. For more information about the SEC’s proposed rule on climate-related disclosures, see Deloitte’s March 21, 2022 (updated March 29, 2022); March 29, 2022; and May 26, 2022, Heads Up newsletters.

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This publication provides comprehensive guidance; however, it does not address all possible fact patterns, and the guidance is subject to change. Consult a Deloitte & Touche LLP professional regarding your specific issues and questions.