Statements of Position



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This Statement of Position (SOP) consists of two Parts: (1) a nonauthoritative discussion of major federal legislation dealing with pollution control (responsibility) laws and environmental remediation (cleanup) laws and the need to consider various individual state and other non-United States government requirements and (2) authoritative guidance on specific accounting issues that are present in the recognition, measurement, display, and disclosure of environmental remediation liabilities. This SOP does not provide guidance on accounting for pollution control costs with respect to current operations or on accounting for costs of future site restoration or closure that are required upon the cessation of operations or sale of facilities. This SOP also does not provide guidance on accounting for environmental remediation actions that are undertaken at the sole discretion of management and that are not induced by the threat of assertion of litigation, a claim, or an assessment. Furthermore, this SOP does not provide guidance on recognizing liabilities of insurance companies for unpaid claims, nor does it address asset impairment issues. The SOP is written in the context of the operations taking place in the United States, however the accounting guidance is applicable to all operations of the reporting entity. This SOP provides: A. That environmental remediation liabilities should be accrued when the criteria of Financial Accounting Standards Board (FASB) Statement of Financial Accounting Standards No. 5, Accounting for Contingencies, are met, and it includes benchmarks to aid in the determination of when environmental remediation liabilities should be recognized in accordance with FASB Statement No. 5. B. That an accrual for environmental liabilities should include — (1) Incremental direct costs of the remediation effort, as defined. (2) Costs of compensation and benefits for employees to the extent an employee is expected to devote time directly to the remediation effort. C. That the measurement of the liability should include— (1) The entity's allocable share of the liability for a specific site. (2) The entity's share of amounts related to the site that will not be paid by other potentially responsible parties or the government. D. That the measurement of the liability should be based on enacted laws and existing regulations, policies, and remediation technology. E. That the measurement of the liability should be based on the reporting entity's estimates of what it will cost to perform all elements of the remediation effort when they are expected to be performed and that the measurement may be discounted to reflect the time value of money if the aggregate amount of the obligation and the amount and timing of cash payments for a site are fixed or reliably determinable. F. Guidance on the display of environmental remediation liabilities in financial statements and on disclosures about environmental-cost-related accounting principles, environmental remediation loss contingencies, and other loss contingency disclosure considerations. The provisions of this SOP are effective for fiscal years beginning after December 15, 1995. Earlier application is encouraged. The effect of initially applying this SOP shall be reported as a change in accounting estimate. Restatement of previously issued financial statements is not permitted.

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Hazardous wastes -- Law and legislation -- United States; Hazardous waste site remediation -- Law and legislation -- United States; Liability for hazardous substances pollution damages -- United States; Environmental law -- United States


Accounting | Taxation


Originally published by: American Institute of Certified Public Accountants; Copyright and permission to reprint held by: American Institute of Certified Public Accountants.

Proposed statement of position : Environmental remediation liabilities (including auditing guidance);Environmental remediation liabilities (including auditing guidance); Exposure draft (American Institute of Certified Public Accountants), 1995, June 30



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