Office of Business and Finance
Office of Business and Finance
GASB 49 addresses accounting and financial reporting standards for pollution remediation obligations, which are obligations to address the current or potential detrimental effects of existing pollution by participating in pollution remediation activities such as site assessments and cleanups. The scope of this statement excludes pollution prevention or control obligations with respect to current operations, and future pollution remediation activities that are required upon retirement of an asset.
A pollution remediation obligation is an obligation to address the current or potential detrimental effects of existing pollution by participating in pollution remediation activities. Pollution remediation activities include:
Pollution remediation outlays include all direct outlays attributable to pollution remediation activities (payroll and benefits, equipment and facilities, materials, legal and other professional services) and may include estimated indirect outlays (including overhead). The following outlays are not part of performing pollution remediation and should not be included: fines, penalties, toxic torts, product and process safety outlays, litigation support involved with potential recoveries, and outlays borne by society at large rather than by a specific government.
Pollution remediation obligations generally will result in recognition and reporting of pollution remediation liabilities. When an institution knows or reasonably believes that a site is polluted, the institution should determine whether one or more components of a pollution remediation obligation are recognizable as a liability when any of the following events occurs:
Pollution remediation liabilities should be recognized as the ranges of their components become reasonably estimatable. In some cases, the institution may have insufficient information to reasonable estimate the ranges of all components of its liability. In these cases, the institution should recognize pollution remediation liabilities as the range of each component of the liability becomes reasonably estimatable.
The range of an estimated remediation liability often will be defined and periodically refined, as necessary, as different stages in the remediation process occur. Certain stages of a remediation effort or process provide benchmarks that should be considered when evaluating the extent to which a range of potential outlays for a remediation effort or process is reasonably estimatable. Benchmarks should not, however, be applied in a manner that would delay recognition beyond the point at which a reasonable estimate of the range of a component of a liability can be made. The recognition benchmarks that follow typically apply to pollution remediation obligations that are not common or similar to situations at other sites with which the institution has experience. At a minimum, the estimate of a pollution remediation liability should be evaluated as each of these benchmarks occurs.
Pollution remediation liabilities should be measured based on the pollution remediation outlays expected to be incurred to settle those liabilities. Pollution remediation liabilities should be measured at their current value. The current value of a pollution remediation liability should be based on reasonable and supportable assumption about future events that may affect the eventual settlement of the liability.
Pollution remediation liabilities should be measured using the expected cash flow technique, which measures the liability as the sum of probability-weighted amounts in a range of possible estimated amounts – the estimated mean or average.
Expected recoveries from other responsible parties, and expected recoveries from insurance policies that indemnify the institution for its pollution remediation obligations, should be included in the measurement by reducing the expense and affecting the liability as follows:
If recoveries become expected in periods following the completion of all remediation work, such that a pollution remediation liability no longer exists, those transactions should be recorded as revenue and cash/receivable when they are realized or realizable.
Generally, pollution remediation outlays, including outlays for property, plant, and equipment, should be reported as an expense when a liability is recognized. Pollution remediation outlays should be capitalized when goods and services are acquired if acquired for any of the following circumstances:
Pollution remediation costs should be reported in the statement of activities and statement of revenues, expenses, and changes in net assets as a program or operating expense, special item, or extraordinary item in accordance with the guidance in paragraphs 41-46, 55, 56, 101, and 102 of Statement 34.
For recognized pollution remediation liabilities and recoveries of pollution remediation outlays, institutions should disclose the following:
For pollution remediation liabilities, or portions thereof, that are not yet recognized because they are not reasonably estimable, institutions should disclose a general description of the nature of the pollution remediation activities.
This Statement is effective beginning FY 2008-09. Institutions that have sufficient and verifiable information to apply the expected cash flow technique to measurements in prior periods should apply the provisions of this Statement retroactively for all such prior periods presented. Institutions that do not have that information should apply the provisions of this Statement as of the effective date. In that case, pollution remediation liabilities should be measured at the beginning of the period so that beginning net assets can be restated.