4.7 Presentation
ASC 410-20 and ASC 230-10 include the following
guidance on presentation matters related to AROs:
ASC 410-20
45-1 Accretion expense shall be classified as an operating item in the statement of income. An entity
may use any descriptor for accretion expense so long as it conveys the underlying nature of the
expense.
45-2 See paragraph 230-10-45-17 for additional information about the classification of cash
payments for asset retirement obligations as operating items on the statement of cash flows.
45-3 Paragraph 230-10-45-17(e) states that a cash payment made to settle an asset retirement
obligation is a cash outflow for operating activities.
ASC 230-10
45-17 All of the following are
cash outflows for operating activities: . . .
e. Cash payment made to settle an asset retirement
obligation. . . .
Connecting the Dots
Classification of Liabilities
ASC 210-10-20 defines current liabilities as “obligations whose liquidation is
reasonably expected to require the use of existing resources properly
classifiable as current assets, or the creation of other current
liabilities.” Entities should consider whether the estimated ARO
expenditures over the next 12 months or operating cycle, whichever is
longer, should be classified as current. Questions that entities should
consider in making this evaluation include the following:
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Have the necessary permits been obtained to finish the work that is estimated to be completed in the next 12 months?
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Has approval been obtained to use existing resources to finish the work that is estimated to be completed in the next 12 months?
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Are there any contractual or legal deadlines that require the completion of certain projects included in the ARO cash flows within the next 12 months?
Statement of Cash Flow Considerations
As indicated in ASC 410-20-45-3, “[p]aragraph 230-10-45-17(e) states that a cash payment made to settle an asset retirement obligation is a cash outflow for operating activities.”