fin 47 says you should be<\/i><\/p>\n
by rick telberg<\/b>
\nfor the finance executive<\/i> <\/p>\n
so what’s up with your sludge? how about that orange stuff that just went down the wrong drain? got a plan for that old smokestack? what do you think: your mother’s going to clean up your low-level radioactive waste? <\/p>\n
these are no longer just environmental issues. they’re accounting issues and your financial statements better start addressing them. <\/p>\n
last year, the financial accounting standards board issued financial interpretation number 47, “accounting for conditional asset retirement obligations,” and it’s been in effect since 2005. <\/p>\n
so it’s time to start estimating the cost of cleaning up after yourself, or, in the fasb vernacular, retiring your assets ? not just the ones teetering on obsolescence, but the ones that you know will have to be disposed of someday.and if disposal is going to have to involve some kind of decontamination or other complication of clean-up, fin 47 requires that you start reporting the cost of the clean-up as soon as you start contaminating the asset. <\/p>\n
take your underground 500,000-gallon polyethyldimethyltriacetonenzineglopicide storage tanks, for example. maybe you don’t know exactly when you’ll have to retire them, but you do know that by the time you do, they will contain at least a fathom and a half of toxic sludge. <\/p>\n
under fin 47, it’s already time to start reporting this environmental liability. <\/p>\n
fin 47 is an interpretation of financial accounting standard 143, “accounting for asset retirement obligations.” both pronouncements exempt “immaterial items,” but neither offers a formula for calculating materiality. companies are expected to apply a little brains and responsibility to the qualitative and quantitative aspects of the liability and perhaps consider aggregating a mess of smaller liabilities to generate reportable materiality. <\/p>\n
these assessments themselves can take on the look and feel of toxic sludge. neither fin nor fas prescribes a specific way to estimate a future retirement date or figures the cost of disposal and clean-up. rather, they let a company consider its own past practice, the intent of its management, general industry practice, environmental risk information databases, the advice of consultants and other relevant indicators. <\/p>\n
in other words, fin 47 establishes not a prescription, but a principle. the value of retirement obligations must be reported when the responsibility for them first occurs, not when it’s time to actually start doing something about them. <\/p>\n
this is a lot like the time your mother told you to pick up your socks off the living room floor because company was coming. you didn’t do it, did you? you left them there until the doorbell rang, and then she picked them up for you. <\/p>\n
well, those days are over. <\/p>\n
today’s financial managers cannot leave deep-future asset retirement liabilities for some deep-future financial manager (and deep-future shareholders) to worry about. those who begin creating the liability are the ones who must begin estimating the liability, and they must report it as of fiscal year 2006. <\/p>\n
this long-term look into the future will challenge the preparers of financial statements, but let’s face it: it’s the right thing to do. the future happens. if financial statements are to reflect reality, they have to report the future impact of present actions, no matter how far in the future, no matter how rough the guesstimation. among the many beans you count, this is a big one, and your mother isn’t going to do it for you.<\/p>\n","protected":false},"excerpt":{"rendered":"