Asset Retirement Obligations (Portfolio 5143)


Cheri Mazza Mazza

CEO and Owner

CRM Accounting and Financial Consulting

Ruth McEwen

Director, School of Accounting

Florida International University

At a glance

I. Scope and Purpose of Portfolio
II. Background on Accounting for Asset Retirement Obligations
III. Measuring and Recording Asset Retirement Obligations
IV. Other Issues Related to Asset Retirement Obligations
V. Fair Value Measurement of Asset Retirement Obligations
VI. Examples of Accounting for Asset Retirement Obligations


Bloomberg Tax Portfolio 5143, Asset Retirement Obligations (Accounting Policy and Practice Series), discusses the calculation, presentation, and disclosure of asset retirement obligations and presents the differences between U.S. GAAP and IFRS in accounting for these items. The Portfolio provides in-depth, practical examples.

All companies' financials must acknowledge that at the end of a long-lived asset's life cleanup activities may be legally required. In the financial accounting sense, many of those activities become liabilities early in the asset's life, often in conjunction with acquisitions. Under U.S. GAAP, the requirements concerning these “asset retirement obligations” are contained in FASB Accounting Standards Codification (ASC) 410-20 (based largely on rules in FASB Statement No. 143, Accounting for Asset Retirement Obligations, as supplemented by FASB Interpretation No. 47, Accounting for Conditional Asset Retirement Obligations). The liability must be measured in accordance with the provisions of ASC 820-10 (based largely on principles in FASB Statement No. 157, Fair Value Measurements). Under IFRS, parallel but not identical requirements are set forth in IASC International Accounting Standard 37, Provisions, Contingent Liabilities and Contingent Assets. This Portfolio compares and contrasts ASC 410-20 and IAS 37.

Asset retirement obligations essentially must be accounted for as follows. Entities recognize a liability for an asset retirement obligation when incurred if its fair value reasonably can be estimated. Entities at the same time must recognize an offsetting asset retirement cost by increasing the carrying amount of the related long-lived asset. In periods subsequent to initial recognition, entities must recognize period-to-period changes in the asset retirement obligation liability resulting from the passage of time (accretion expense) and revisions in the timing and amount of the underlying expected cash flows. Further, entities must recognize depreciation expense resulting from the systematic and rational allocation of the asset retirement cost.

This Portfolio details the requirements of ASC 410-20 focusing on definitions within this Codification Subtopic as well as initial and subsequent recognition and measurement of asset retirement obligations. The explanation includes a discussion of fair value measurements and the recognition of conditional asset retirement obligations. Explanation of the major provisions is followed by a discussion of asset impairments, effects of funding and assurance provisions, information for rate-regulated entities, required disclosures, and transition provisions. The Portfolio also discusses other issues related to asset retirement obligations, including IFRS and ongoing FASB projects, environmental remediation liabilities, and SEC issues. That is followed by an explanation of how to apply the fair value measurement principles in ASC 820-10 in accounting for asset retirement obligations. The Portfolio concludes by providing detailed examples illustrating the provisions of ASC 410-20. The Worksheets provide excerpts from financial statements of various public companies illustrating their accounting for asset retirement obligations.

This Portfolio may be cited as Bloomberg Tax Portfolio 5143, Mazza and McEwen, Asset Retirement Obligations (Accounting Policy and Practice Series).

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