ASC

ASC 410-30

Environmental Obligations

410 Asset Retirement and Environmental Obligations

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In brief

IntermediateRecognitionSubsequent measurementContingencies and guaranteesDisclosure

ASC 410-30 governs accounting for environmental remediation liabilities — obligations to clean up pollution arising from past acts under Superfund (CERCLA), RCRA corrective-action provisions, or analogous state/non-U.S. laws. Applied site by site, it uses the loss contingency model of ASC 450-20: accrue when it is probable a liability has been incurred (litigation/claim asserted or probably will be, and an unfavorable outcome probable) and the amount (or a minimum in a range) is reasonably estimable, measured as the entity's allocable share of the joint and several liability plus amounts other PRPs won't pay. Remediation costs are generally expensed as a component of operating income, with narrow capitalization exceptions and separate recognition of probable third-party recoveries as assets.

Key points (7)
  • Accrual follows 450-20-25-2: probable that a liability has been incurred and reasonably estimable; in the remediation context probability has two elements — litigation/claim/assessment commenced or probable commencement, and probable unfavorable outcome (410-30-25-4), with a presumption of unfavorable outcome if the entity is associated with the site (410-30-25-6).
  • Inability to estimate the total liability does not defer recognition: components that can be reasonably estimated serve as a surrogate for the minimum of the overall range, and the best estimate (or minimum of a range) must be recognized and refined as events occur (410-30-25-10 through 25-13).
  • Recognition benchmarks — PRP identification, receipt of a unilateral administrative order, participation in the remedial investigation-feasibility study, completion of the feasibility study, record of decision, and remedial design through operation and maintenance — must be evaluated, but may not be used to delay recognition beyond the point the 450-20 criteria are met (410-30-25-14 through 25-15).
  • Measurement is the entity's estimated allocable share of the joint and several liability plus its share of amounts that will not be paid by other PRPs or the government, with a rebuttable presumption that costs are allocated only among participating PRPs (410-30-30-1, 30-4, 30-7, 30-8).
  • Included costs are incremental direct costs of the remediation effort and compensation/benefits of employees devoting significant time to it, based on enacted laws and adopted regulations, estimated at the cost when the work is expected to be performed; discounting is permitted only if the amount and timing of payments are fixed or reliably determinable (410-30-30-10, 30-15, 30-17, 410-30-35-12).
  • Remediation costs are generally charged to expense and reported in operating income, with recovery credits in the same line item; capitalization is allowed only if costs are recoverable and they improve the property versus its original condition, prevent future contamination, or ready property held for sale (410-30-25-16, 25-18, 410-30-45-4).
  • A recovery asset is recognized only when realization of the claim is probable, measured independently of the liability, with a rebuttable presumption that realization is not probable if the claim is in litigation; disclosure must state whether the accrual is discounted, and if so the undiscounted amount and discount rate (410-30-35-8, 35-9, 410-30-50-4, 50-7).

For students. This is the classic overlay of ASC 450-20 loss contingency mechanics on Superfund/CERCLA facts, so exam questions test when accrual is triggered and how much. The most common mistake is waiting for total site costs (or the final PRP allocation) to be known — GAAP requires accruing the reasonably estimable components or minimum of the range now and refining later; also don't confuse 410-30 (past contamination, remediation) with 410-20 asset retirement obligations arising from normal operation of a long-lived asset.

environmental remediation liabilitypotentially responsible partyjoint and several liabilityallocable sharerecognition benchmarksremedial investigation-feasibility studythird-party recoveriesloss contingency

Machine-generated study aid for ASC 410-30. Check the source paragraphs below.

410-30-00Status

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410-30-05Overview and Background

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410-30-05-1
This Subtopic provides guidance on accounting for environmental remediation liabilities and is written in the context of operations taking place in the United States; however, the accounting guidance is applicable to all the operations of the reporting entity.
410-30-05-2
The objective of this Overview and Background Section is to provide an overview of important environmental laws and regulations. It is intended to be nonauthoritative. The summary of legal matters contained in this Section represents an understanding of the legal requirements and practices at the time that these environmental laws were initially enacted. Any references to the various laws, rules, regulations established by others shall not be considered definitive interpretations of such laws, rules, and regulations for any purpose. Laws, rules and regulations may change over time and the standard Financial Accounting Standards Board (FASB) process will not update the Codification for such changes. The FASB assumes no responsibility for the accuracy of the legal guidance included here. Therefore, users must evaluate the current laws, rules, and regulations.
410-30-05-3
Although this Section focuses on both state and federal U. S. laws and regulations, environmental considerations are also important for foreign operations. Environmental laws and regulations in many countries are similar to U. S. laws. The legal and regulatory climates in other countries are evolving. Regardless of whether the host countries' environmental laws are as stringent as those in the United States, entities can often be held liable for environmental damages under a variety of nonenvironmental statutes and broad legal theories.
410-30-05-4
This Section is organized as follows:
  1. a
    Environmental remediation liability laws
  2. b
    Laws intended to control or prevent pollution
  3. c
    Other federal statutes
  4. d
    Potentially responsible parties
  5. e
    Strict liability
  6. f
    Joint and several liability
  7. g
    Mitigation of strict, joint and several, and retroactive liability
  8. h
    Costs associated with remediation
  9. i
    Environmental loss contingencies.

Environmental Remediation Liability Laws

410-30-05-5
The first kind of environmental law, environmental remediation liability laws, includes individual statutes as well as response provisions in other statutes. The most important of these are the Comprehensive Environmental Response, Compensation, and Liability Act of 1980, as amended by the Superfund Amendments and the Reauthorization Act of 1986, which together are referred to as Superfund, and the corrective action provisions of the Resource Conservation and Recovery Act of 1976. Under Superfund's current broad liability provisions, the U.S. Environmental Protection Agency may order liable parties to remediate sites or use Superfund money to remediate them and then seek to recover its costs and additional damages. Similarly, under the corrective action provisions of the Resource Conservation and Recovery Act of 1976, the Environmental Protection Agency may order "facilities that treat, store, or dispose of hazardous waste" to clean up releases of hazardous waste constituents associated with past or ongoing practices.
410-30-05-6
Congress enacted the Comprehensive Environmental Response, Compensation, and Liability Act of 1980 in 1980 to facilitate the remediation of abandoned waste sites. The Comprehensive Environmental Response, Compensation, and Liability Act established a program to identify sites where hazardous substances have been or might be released into the environment; to ensure that they are remediated by responsible parties or the government; to compensate the United States, states, municipalities, and tribes for damages to natural resources; and to create a procedure for claims against responsible parties by parties who have cleaned up sites or spent money to restore natural resources.
410-30-05-7
The Resource Conservation and Recovery Act provides comprehensive federal regulation of hazardous wastes from point of generation to final disposal. All generators of hazardous waste, transporters of hazardous waste, and owners and operators of hazardous waste treatment, storage, or disposal facilities must comply with the applicable requirements of the statute. Many states have also enacted laws that are similar to the federal statutes. Furthermore, under certain federal statutes, such as the Resource Conservation and Recovery Act of 1976, states are allowed to promulgate regulations to implement federal programs as long as the state law is at least as stringent as the federal law. In most such cases, states are free to enact more stringent provisions.

Laws Intended to Control or Prevent Pollution

410-30-05-8
Environmental laws of the second kind are intended to control or prevent pollution and are directed at identifying or regulating pollution sources or reducing emissions or discharges of pollutants. There are many statutes that regulate sources of pollution, including the pollution control provisions of the Resource Conservation and Recovery Act of 1976 (solid and hazardous wastes), the Clean Water Act (discharge of pollutants into the waters of the United States and to publicly owned treatment works), and the Clean Air Act (emission of pollutants into the atmosphere). Other examples are the Emergency Planning and Community Right-to-Know Act and the Pollution Prevention Act of 1990.
410-30-05-9
The pollution control provisions in Chapter 3 of the Resource Conservation and Recovery Act of 1976 provide for cradle-to-grave management standards for hazardous wastes. Section 7003 of the Resource Conservation and Recovery Act of 1976 also authorizes the Environmental Protection Agency to conduct removal actions, seek affirmative injunctive relief, and maintain cost-recovery actions where an imminent and substantial endangerment to the public health or welfare or to the environment is determined to exist. Much like under Superfund, one who has contributed to the disposal of waste that is causing an imminent and substantial endangerment can be required to perform or pay for associated remediation under section 7003. The Resource Conservation and Recovery Act of 1976 also requires the Environmental Protection Agency to regulate underground storage tanks. Most states have enacted their own underground storage tank regulations as well.
410-30-05-10
The Clean Air Act provides comprehensive federal regulation of all sources of air pollution. Amendments to the Clean Air Act in the 1990s are designed to address issues such as acid rain, urban air pollution, toxic air pollutants, and ozone-depleting chemicals. The major provisions of the Clean Air Act amendments require emissions reduction in the electric utility industry, operating permits for existing facilities, an expansion of the air toxics program to regulate a large number of toxic air pollutants, and new source categories (including smaller sources, such as dry cleaners).
410-30-05-11
The Clean Water Act provides comprehensive federal regulation of all sources of water pollution. The act authorizes cleanup, injunctive, and cost-recovery actions where an imminent hazard is caused by pollution. It also prohibits the discharge of oil and other hazardous substances to the navigable waters of the United States, imposes a criminal penalty for failure to notify the appropriate entity of such discharges, and provides for citizen suits. Most states have assumed enforcement of the Act within their borders through state regulations that correspond to the federal regulations related to the control or prevention of pollution of water.

Other Federal Statutes

410-30-05-12
There are a variety of other statutes that relate to environmental matters. Two of the more significant statutes are the Emergency Planning and Community Right-to-Know Act and the Toxic Substances Control Act.
410-30-05-13
The Emergency Planning and Community Right-to-Know Act requires facilities that have certain quantities of extremely hazardous substances to notify their state emergency response commission that they are subject to the emergency planning requirements of the Superfund Amendments and Reauthorization Act of 1986. They must also report releases to the local emergency planning committee. In addition, facilities that store chemicals over specified threshold amounts must submit material safety data sheets, or their equivalent, to the appropriate local emergency planning committee, the state emergency response commission, and the fire department with jurisdiction over the facility.
410-30-05-14
The Toxic Substances Control Act regulates the manufacture, processing, and distribution in commerce of chemical substances and mixtures capable of adversely affecting health or the environment. The Toxic Substances Control Act may require testing and may impose use restrictions, along with requirements for the reporting and retention of information on the risks of Toxic Substances Control Act- regulated substances. Regulations promulgated under the Toxic Substances Control Act also govern the manufacturing, processing, and distribution in commerce of polychlorinated biphenyls and asbestos.

Potentially Responsible Parties

410-30-05-15
Superfund places liability on the following four distinct classes of responsible parties:
  1. a
    Current owners or operators of sites at which hazardous substances have been disposed of or abandoned
  2. b
    Previous owners or operators of sites at the time of disposal of hazardous substances
  3. c
    Parties that "arranged for disposal" of hazardous substances found at the sites
  4. d
    Parties that transported hazardous substances to a site, having selected the site for treatment or disposal.
410-30-05-16
This liability is imposed regardless of whether a party was negligent, whether the site was in compliance with environmental laws at the time of the disposal, or whether the party participated in or benefited from the deposit of the hazardous substance. Parties that disposed of hazardous substances many years ago—including the years preceding the enactment of the Comprehensive Environmental Response, Compensation, and Liability Act of 1980 —at sites where there is, was, or may be a release into the environment, may be liable for remediation costs.

Strict Liability

410-30-05-17
The courts have interpreted the Comprehensive Environmental Response, Compensation, and Liability Act of 1980 to impose strict liability. Thus, a waste generator that disposed of its waste at approved facilities, in accordance with all then-current requirements, having exercised "due care," would nevertheless be liable. Further, a waste generator that is responsible for a small percentage of the total amount of waste at a site may be held liable for the entire cost of remediating the site.
410-30-05-18
Also noteworthy is that wastes need not be hazardous wastes for there to be environmental remediation liability. If the waste generator "arranged for disposal" of wastes containing hazardous substances (at any concentration level and regardless of whether the substances were defined as, or known to be, hazardous at the time of disposal), and a "release" of hazardous substances has or could occur, the waste generator could be subject to environmental remediation liability.
410-30-05-19
Hazardous substance is a much broader term than hazardous waste. It includes any substance identified by the Environmental Protection Agency by regulation, pursuant to a number of federal statutes. Covered, for example, are substances considered to be toxic pollutants under the Clean Water Act or hazardous air pollutants under the Clean Air Act. The various lists of hazardous substances identified by the Environmental Protection Agency contain more than one thousand chemicals and chemical compounds.
410-30-05-20
The possibility of becoming subject to liability for environmental remediation costs associated with past waste disposal practices based on strict liability can affect transactions involving the acquisition or merger of an entity or the purchase of land.

Joint and Several Liability

410-30-05-21
Through Environmental Protection Agency initiated legal action, liability under the Comprehensive Environmental Response, Compensation, and Liability Act of 1980 may be joint and several. If a potentially responsible party can prove, however, that the harm is divisible and there is a reasonable basis for apportionment of costs, the potentially responsible party may ultimately be responsible only for its portion of the costs.
410-30-05-22
In order to mitigate the potentially harsh effects of the strict, joint and several, and retroactive liability scheme, however, Superfund does permit responsible parties to sue other responsible parties to make them contribute to the cost of the remediation or to recover money spent on remediation.

Costs Associated with Remediation

410-30-05-23
Costs to a potentially responsible party may include cleanup costs (containment, removal, remedial action), enforcement costs (for example, legal), government oversight costs, and natural resource damages. Though the Comprehensive Environmental Response, Compensation, and Liability Act of 1980 does not provide for personal injury or property damage suits, suits for injury to health or property (referred to as toxic torts) may also be brought by third parties under various legal theories. There is a growing specter of liability for natural resource damages under the Superfund laws. The Comprehensive Environmental Response, Compensation, and Liability Act of 1980 authorizes the recovery of damages for injury to, destruction of, or loss of natural resources, including reasonable costs for assessing such injury resulting from a release of a hazardous substance. Natural resource damage claims include actual restoration costs and lost use values and may in the future include nonuse values, such as the intrinsic public value of protecting or restoring resources that may not be used but are valuable for their mere existence.
410-30-05-24
Additional costs can include a remedial investigation and a feasibility study that together generally take a minimum of two years to complete and, depending on factors such as the types of hazardous substances, soil formations, and number of parties involved, may take more than five years. The Environmental Protection Agency oversees the progress of the remedial investigation and feasibility study, and completion is sometimes performed in stages. After Superfund site remedial action is completed, activities must be conducted at the site to ensure that the remedy is effective and operating properly. For example, after a system to pump and treat groundwater is constructed (remedial action), the system must be operated and maintained. In addition, the Environmental Protection Agency may require postremediation monitoring. These operation and maintenance activities may continue for 30 years or longer.

Environmental Loss Contingencies

410-30-05-25
Although environmental remediation liabilities is not one of the examples discussed in paragraph 450-20-05-10, environmental remediation liabilities are loss contingencies, and the discussion in paragraphs
450-20-55-10 through 55-17
can be useful in understanding the requirements of Subtopic 450-20 as they relate to environmental remediation liabilities.

410-30-10Objectives

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410-30-10-1
This Subtopic requires that an entity recognize a liability for obligations associated with environmental remediation liabilities that relate to pollution arising from some past act, generally as a result of the provisions of Superfund, the corrective-action provisions of the Resource Conservation and Recovery Act, or analogous state and non-U.S. laws and regulations.

410-30-15Scope and Scope Exceptions

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Entities

410-30-15-1
The provisions of this Subtopic apply to all entities. This Subtopic provides guidance on accounting for environmental remediation liabilities and is written in the context of operations taking place in the United States; however, the accounting guidance is applicable to all the operations of the reporting entity.
410-30-15-2
The recognition and measurement guidance in this Subtopic should be applied on a site-by-site basis.

Transactions

410-30-15-3
The guidance in this Subtopic does not apply to the following transactions and activities:
  1. a
    Environmental contamination incurred in the normal operation of a long-lived asset (see Subtopic 410-20 for guidance that will apply if the entity is legally obligated to treat the contamination). Paragraph 410-20-15-3(b) explains that the obligation to clean up the spillage resulting from the normal operation of the fuel storage facility is within the scope of Subtopic 410-20. Additionally, that Subtopic applies if a legal obligation to treat environmental contamination is incurred or assumed as a result of the acquisition, construction, or development of a long-lived asset.
  2. b
    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, as such current and future costs and obligations represent a class of accounting issues different from environmental remediation liabilities.
  3. c
    Environmental remediation actions that are undertaken at the sole discretion of management and that are not induced by the threat, by governments or other parties, of litigation or of assertion of a claim or an assessment.
  4. d
    Recognizing liabilities of insurance entities for unpaid claims.
  5. e
    Natural resource damages and toxic torts (see paragraphs
    450-20-55-10 through 55-21
    ).
  6. f
    Asset impairment issues.

410-30-25Recognition

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Overall Approach

410-30-25-1
Paragraph 450-20-25-2 requires the accrual of a liability if both of the following conditions are met:
  1. a
    Information available before the financial statements are issued or are available to be issued (as discussed in Section 855-10-25) indicates that it is probable that an asset has been impaired or a liability has been incurred at the date of the financial statements.
  2. b
    The amount of the loss can be reasonably estimated.
410-30-25-2
An entity's environmental remediation obligation that results in a liability generally does not become determinable as a distinct event, nor is the amount of the liability generally fixed and determinable at a specific point in time. Rather, the existence of a liability for environmental remediation costs becomes determinable and the amount of the liability becomes estimable over a continuum of events and activities that help to frame, define, and verify the liability. (See Subtopic 450-20.)
410-30-25-3
The underlying cause of an environmental remediation liability is the past or present ownership or operation of a site, or the contribution or transportation of waste to a site, at which remedial actions (at a minimum, investigation) must take place. For a liability to be recognized in the financial statements, this underlying cause must have occurred on or before the date of the financial statements.

Probability That a Liability Has Been Incurred

410-30-25-4
In the context of environmental remediation liabilities, the probability criterion in paragraph 450-20-25-2 consists of two elements; the criterion is met if both of the following elements are met on or before the date the financial statements are issued or are available to be issued (as discussed in Section 855-10-25):
  1. a
    Litigation has commenced or a claim or an assessment has been asserted, or, based on available information, commencement of litigation or assertion of a claim or an assessment is probable. In other words, it has been asserted (or it is probable that it will be asserted) that the entity is responsible for participating in a remediation process because of a past event.
  2. b
    Based on available information, it is probable that the outcome of such litigation, claim, or assessment will be unfavorable. In other words, an entity will be held responsible for participating in a remediation process because of the past event.
410-30-25-5
What constitutes commencement or probable commencement of litigation or assertion or probable assertion of a claim or an assessment in relation to particular environmental laws and regulations may require legal determination.
410-30-25-6
Given the legal framework within which most environmental remediation liabilities arise, there is a presumption that the outcome of such litigation, claim, or assessment will be unfavorable if both of the following conditions exist:
  1. a
    Litigation has commenced or a claim or an assessment has been asserted, or commencement of litigation or assertion of a claim or assessment is probable.
  2. b
    The reporting entity is associated with the site—that is, it in fact arranged for the disposal of hazardous substances found at a site or transported hazardous substances to the site or is the current or previous owner or operator of the site.

Ability to Reasonably Estimate the Liability

410-30-25-7
Estimating environmental remediation liabilities involves an array of issues at any point in time. In the early stages of the process, cost estimates can be difficult to derive because of uncertainties about a variety of factors. For this reason, estimates developed in the early stages of remediation can vary significantly; in many cases, early estimates later require significant revision. The following are some of the factors that are integral to developing cost estimates:
  1. a
    The extent and types of hazardous substances at a site
  2. b
    The range of technologies that can be used for remediation
  3. c
    Evolving standards of what constitutes acceptable remediation
  4. d
    The number and financial condition of other potentially responsible parties and the extent of their responsibility for the remediation (that is, the extent and types of hazardous substances they contributed to the site).
410-30-25-8
Section 450-20-55 concludes that the criterion for recognition of a loss contingency in paragraph 450-20-25-2(b) is met when a range of loss can be reasonably estimated.
410-30-25-9
An estimate of the range of an environmental remediation liability typically is derived by combining estimates of various components of the liability (such as the costs of performing particular tasks, or amounts allocable to other potentially responsible parties but that will not be paid by those other potentially responsible parties), which are themselves likely to be ranges. For some of those component ranges, there may be amounts that appear to be better estimates than any other amount within the range; for other component ranges, there may be no such best estimates. Accordingly, the overall liability that is recorded may be based on amounts representing the lower end of a range of costs for some components of the liability and best estimates within ranges of costs of other components of the liability.
410-30-25-10
At the early stages of the remediation process, particular components of the overall liability may not be reasonably estimable. This fact should not preclude the recognition of a liability. Rather, the components of the liability that can be reasonably estimated should be viewed as a surrogate for the minimum in the range of the overall liability.
410-30-25-11
For example, a sole potentially responsible party that has confirmed that it sent waste to a Superfund site and agrees to perform a remedial investigation and feasibility study may know that it will incur costs related to the remedial investigation-feasibility study. The potentially responsible party, although aware that the total costs associated with the site will be greater than the cost of the remedial investigation-feasibility study, may be unable to reasonably estimate the overall liability because of existing uncertainties, for example, regarding the kinds and quantities of hazardous substances present at the site and the technologies available to remediate the site. This lack of ability to quantify the total costs of the remediation effort, however, shall not preclude recognition of the estimated cost of the remedial investigation-feasibility study. In this circumstance, a liability for the best estimate (or, if no best estimate is available, the minimum amount in the range) of the cost of the remedial investigation-feasibility study and for any other component remediation costs that can be reasonably estimated shall be recognized in the entity's financial statements.
410-30-25-12
Uncertainties relating to the entity's share of an environmental remediation liability shall not preclude the entity from recognizing its best estimate of its share of the liability or, if no best estimate can be made, the minimum estimate of its share of the liability, if the liability is probable and the total remediation liability associated with the site is reasonably estimable within a range (see paragraphs
410-30-30-1 through 30-7
).
410-30-25-13
Uncertainties are pervasive in the measurement of environmental remediation liabilities, and reporting entities are required to recognize their best estimate at the particular point in time (or, if no best estimate can be made, the minimum estimate) of their share of the liability and to refine their estimate as events in the remediation process occur.

Benchmarks

410-30-25-14
Certain stages of a remediation effort or process and of potentially responsible party involvement (see paragraph 410-30-05-24 for a discussion of these stages) provide benchmarks that should be considered when evaluating the probability that a loss has been incurred and the extent to which any loss is reasonably estimable. Benchmarks should not, however, be applied in a manner that would delay recognition beyond the point at which the recognition criteria in Subtopic 450-20 are met.
410-30-25-15
The following are recognition benchmarks for a Superfund remediation liability; analogous stages of the Resource Conservation and Recovery Act corrective-action process are also indicated. At a minimum, the estimate of a Superfund (or Resource Conservation and Recovery Act) remediation liability should be evaluated as each of these benchmarks occurs.
  1. a
    Identification and verification of an entity as a potentially responsible party. The Resource Conservation and Recovery Act analogue is subjection to facility permit requirements. Receipt of notification or otherwise becoming aware that an entity may be a potentially responsible party compels the entity to action. The entity must examine its records to determine whether it is associated with the site. If, based on a review and evaluation of its records and all other available information, the entity determines that it is associated with the site, it is probable that a liability has been incurred. If all or a portion of the liability is reasonably estimable, the liability shall be recognized. In some cases, an entity will be able to reasonably estimate a range of its liability very early in the process because the site situation is common or similar to situations at other sites with which the entity has been associated (for example, the remediation involves only the removal of underground storage tanks in accordance with the underground storage tank program). In such cases, the criteria for recognition would be met and the liability shall be recognized. In other cases, however, the entity may have insufficient information to reasonably estimate the minimum amount in the range of its liability. In these cases, the criteria for recognition would not be met at this time.
  2. b
    Receipt of unilateral administrative order. The Resource Conservation and Recovery Act analogue is, generally, interim corrective measures. An entity may receive a unilateral administrative order compelling it to take a response action at a site or risk penalties of up to four times the cost of the response action. Such response actions may be relatively limited actions, such as the performance of a remedial investigation and feasibility study or performance of a removal action, or they may be broad actions such as remediating a site. Under section 106 of Superfund, the Environmental Protection Agency must find that an "imminent and substantial endangerment" exists at the site before such an order may be issued. No preenforcement review by a court is authorized under Superfund if an entity elects to challenge a unilateral administrative order. The ability to estimate costs resulting from unilateral administrative orders varies with factors such as site complexity and the nature and extent of the work to be performed. The benchmarks that follow should be considered in evaluating the ability to estimate such costs insofar as the actions required by the unilateral administrative order involve these benchmarks. The cost of performing the requisite work generally is estimable within a range, and recognition of an environmental remediation liability for costs of removal actions generally should not be delayed beyond this point.
  3. c
    Participation, as a potentially responsible party, in the remedial investigation-feasibility study. The Resource Conservation and Recovery Act analogue is Resource Conservation and Recovery Act facility investigation. At this stage, the entity and possibly others have been identified as potentially responsible parties and have agreed to pay the costs of a study that will investigate the extent of the environmental impact of the release or threatened release of hazardous substances and identify site-remediation alternatives. Further, the total cost of the remedial investigation-feasibility study generally is estimable within a reasonable range. In addition, the identification of other potentially responsible parties and their agreement to participate in funding the remedial investigation-feasibility study typically provides a reasonable basis for determining the entity's allocable share of the cost of the remedial investigation-feasibility study. At this stage, additional information may be available regarding the extent of environmental impact and possible remediation alternatives. This additional information, however, may or may not be sufficient to provide a basis for reasonable estimation of the total remediation liability. At a minimum, the entity should recognize its share of the estimated total cost of the remedial investigation-feasibility study. As the remedial investigation-feasibility study proceeds, the entity's estimate of its share of the total cost of the remedial investigation-feasibility study can be refined. Further, additional information may become available based on which the entity can refine its estimates of other components of the liability or begin to estimate other components. For example, an entity may be able to estimate the extent of environmental impact at a site and to identify existing alternative remediation technologies. An entity may also be able to identify better the extent of its involvement at the site relative to other potentially responsible parties; the universe of potentially responsible parties may be identified; negotiations among potentially responsible parties and with federal and state Environmental Protection Agency representatives may occur; and information may be obtained that materially affects the agreed-upon method of remediation.
  4. d
    Completion of feasibility study. The Resource Conservation and Recovery Act analogue is corrective measures study. At substantial completion of the feasibility study, both a minimum remediation liability and the entity's allocated share generally will be reasonably estimable. The feasibility study should be considered substantially complete no later than the point at which the potentially responsible parties recommend a proposed course of action to the Environmental Protection Agency. If the entity had not previously concluded that it could reasonably estimate the remediation liability (the best estimate or, if no amount within an estimated range of loss was a better estimate than any other amount in the range, the minimum amount in the range), recognition should not be delayed beyond this point, even if uncertainties, for example, about allocations to individual potentially responsible parties and potential recoveries from third parties, remain.
  5. e
    Issuance of record of decision. The Resource Conservation and Recovery Act analogue is approval of corrective measures study. At this point, the Environmental Protection Agency has issued its determination specifying a preferred remedy. Normally, the entity and other potentially responsible parties have begun, or perhaps completed, negotiations, litigation (see paragraphs
    410-30-35-8 through 35-11
    ), or both for their allocated share of the remediation liability. Accordingly, the entity's estimate normally can be refined based on the specified preferred remedy and a preliminary allocation of the total remediation costs.
  6. f
    Remedial design through operation and maintenance, including postremediation monitoring. The Resource Conservation and Recovery Act analogue is corrective measures implementation. During the design phase of the remediation, engineers develop a better sense of the work to be done and are able to provide more precise estimates of the total remediation cost. Further information likely will become available at various points until the site is delisted, subject only to postremediation monitoring. The entity should continue to refine and recognize its best estimate of its final obligation as this additional information becomes available.

Criteria to Capitalize Environmental Treatment Costs

410-30-25-16
In general, environmental contamination treatment costs shall be charged to expense.
410-30-25-17
In certain situations, such as those described in paragraphs
410-30-25-18 through 25-21
), it may be appropriate to capitalize environmental remediation costs.
Transition date:(P) December 16, 2026; (N) December 16, 2026Transition guidance:
105-10-65-10In certain situations, such as those described in paragraphs
410-30-25-18 through 25-19
, it may be appropriate to capitalize environmental remediation costs.
410-30-25-18
Those costs may be capitalized if recoverable but only if any one of the following criteria is met:
  1. a
    The costs extend the life, increase the capacity, or improve the safety or efficiency of property owned by the entity. For purposes of this criterion, the condition of that property after the costs are incurred must be improved as compared with the condition of that property when originally constructed or acquired, if later.
  2. b
    The costs mitigate or prevent environmental contamination that has yet to occur and that otherwise may result from future operations or activities. In addition, the costs improve the property compared with its condition when constructed or acquired, if later.
  3. c
    The costs are incurred in preparing for sale that property currently held for sale.
410-30-25-19
This Subtopic requires that tangible assets acquired to clean a particular spill not be charged to expense immediately. Rather, to the extent that those tangible assets have future uses, they may be capitalized. Example 5 (see paragraph 410-30-55-18) illustrates this guidance.

Remediation Liabilities in Property Acquisitions

410-30-25-21
The recording of the receipt of property as a contribution received following the guidance in Subtopic 958-605 shall include the effect of any environmental remediation liability that is recorded in conjunction with the contribution.
410-30-25-22
Recording an environmental remediation liability usually results in a corresponding charge to income, and the guidance herein with respect to the income statement refers to such charges.

Unasserted Claims

410-30-25-23
Future actions of an entity, when they occur, may create a legal obligation to perform environmental remediation; however, no obligation exists currently (for example, if the obligation arises only when and if an entity ceases to operate a facility). Costs related to asset retirement, including costs of future site restoration or closure that are required upon the cessation of operations or sale of facilities, may create a current obligation that would be recognized in accordance with Subtopic 410-20.

410-30-30Initial Measurement

Source downloaded: .Record version d81de75cbd1c. Effective date must be checked in the source.

Allocation of Liability Among Potentially Responsible Parties

410-30-30-1
At the early stages of the remediation process, environmental remediation liabilities are not easily quantified, due in part to their uncertainties. As a practical matter, the range of an estimated remediation liability will be defined and refined as events in the remediation process occur. The environmental remediation liability recorded by an entity should be based on that entity's estimate of its allocable share of the joint and several remediation liability. The estimation of an entity's allocable share of the joint and several remediation liability (see paragraph 410-30-55-4) for a site requires an entity to do all of the following:
  1. a
    Identify the potentially responsible parties for the site
  2. b
    Assess the likelihood that other potentially responsible parties will pay their full allocable share of the joint and several remediation liability
  3. c
    Determine the percentage of the liability that will be allocated to the entity.
410-30-30-2
For purposes of estimating an entity's allocable share of the joint and several remediation liability for a site, those parties that are potentially responsible for paying the remediation liability belong to one of the following five potentially responsible party categories:
  1. a
    Participating potentially responsible parties
  2. b
    Recalcitrant potentially responsible parties
  3. c
    Unproven potentially responsible parties
  4. d
    Unknown potentially responsible parties
  5. e
    Orphan share potentially responsible parties.
410-30-30-3
Over the duration of a remediation project, individual entities may move from one potentially responsible parties category to another.
410-30-30-4
In estimating its allocable share of the joint and several remediation liability for a site, there is a rebuttable presumption that costs will be allocated only among participating potentially responsible parties, as that category exists at the date of issuance of the financial statements.
410-30-30-5
An entity shall determine its allocable share of the joint and several remediation liability for a site based on its estimate of the allocation method and percentage that ultimately will be used for the entire remediation effort. The primary sources for this estimate shall be the allocation method and percentages that:
  1. a
    The potentially responsible parties have agreed to (whether that agreement applies to the entire remediation effort or to the costs incurred in the current phase of the remediation process)
  2. b
    Have been assigned by a consultant
  3. c
    Have been determined by the Environmental Protection Agency.
410-30-30-6
If the entity's estimate of the ultimate allocation method and percentage differs significantly from the method or percentage from these primary sources, the entity's estimate should be based on objective, verifiable information. Examples of objective, verifiable information include all of the following:
  1. a
    Existing data about the kinds and quantities of waste at the site
  2. b
    Experience with allocation approaches in comparable situations
  3. c
    Reports of environmental specialists (internal or external)
  4. d
    Internal data refuting Environmental Protection Agency allegations about the entity's contribution of waste (kind, volume, and so forth) to the site.
410-30-30-7
An entity should assess the likelihood that each potentially responsible party will pay its allocable share of the joint and several remediation liability. That assessment should be based primarily on the financial condition of the participating potentially responsible party. This assessment requires the entity to gain an understanding of the financial condition of the other participating potentially responsible parties and to update and monitor this information as the remediation progresses. The entity shall include in its liability its share of amounts related to the site that will not be paid by other potentially responsible parties or the government.

Costs to Be Included in Remediation Liability

410-30-30-8
Once an entity has determined that it is probable that an environmental remediation liability has been incurred, the entity shall estimate that liability based on available information (see also paragraphs
410-30-25-7 through 25-13
).The estimate of the liability shall include the entity's:
  1. a
    Allocable share of the liability for a specific site
  2. b
    Share of amounts related to the site that will not be paid by other potentially responsible parties or the government.
410-30-30-9
Making the appropriate measurement of an entity's remediation liability involves the following issues:
  1. a
    Costs that should be included in the measurement
  2. b
    Whether the measurement should consider the effects of expected future events or developments, including discounting considerations
  3. c
    How the measurement should be affected by the existence of other potentially responsible parties
  4. d
    How the measurement should be affected by potential recoveries.
410-30-30-10
Costs to be included in the measurement are the following:
  1. a
    Incremental direct costs of the remediation effort (see paragraph 410-30-55-1)
  2. b
    Costs of compensation and benefits for those employees who are expected to devote a significant amount of time directly to the remediation effort, to the extent of the time expected to be spent directly on the remediation effort.
410-30-30-11
The remediation effort is considered on a site-by-site basis; it includes the following:
  1. a
    Precleanup activities, such as the performance of a remedial investigation, risk assessment, or feasibility study and the preparation of a remedial action plan and remedial designs for a Superfund site, or the performance of a Resource Conservation and Recovery Act of 1976 facility assessment, facility investigation, or corrective measures studies
  2. b
    Performance of remedial actions under Superfund, corrective actions under the Resource Conservation and Recovery Act of 1976, and analogous actions under state and non-U.S. laws
  3. c
    Government oversight and enforcement-related activities
  4. d
    Operation and maintenance of the remedy, including required postremediation monitoring.
410-30-30-12
Determining any of the following is part of the remediation effort:
  1. a
    The extent of remedial actions that are required
  2. b
    The type of remedial actions to be used
  3. c
    The allocation of costs among potentially responsible parties.
The costs of making such determinations, including legal costs, shall be included in the measurement of the remediation liability.
410-30-30-13
The costs of services related to routine environmental compliance matters and litigation costs involved with potential recoveries are not part of the remediation effort.
410-30-30-14
Litigation costs involved with potential recoveries shall be charged to expense as incurred until realization of the claim for recovery is considered probable and an asset relating to the recovery is recognized, at which time any remaining such legal costs shall be considered in the measurement of the recovery.
410-30-30-15
The determination of what legal costs are for potential recoveries rather than for determining the allocation of costs among potentially responsible parties will depend on the specific facts and circumstances of each situation. For purposes of measuring environmental remediation liabilities, the measurement shall be based on enacted laws and adopted regulations and policies. No changes should be anticipated. The remedial action plan that is used to develop the estimate of the liability shall be based on the methodology that is expected to be approved to complete the remediation effort.
410-30-30-16
Costs to defend against assertions of liability in the context of environmental remediation liabilities involve determining whether an entity is responsible for participating in a remediation process.
410-30-30-17
The measurement of environmental remediation liabilities shall be based on the reporting entity's estimate of what it will cost to perform each of the elements of the remediation effort (determined in accordance with paragraphs
410-30-30-11 through 30-15
) when those elements are expected to be performed. Although this approach is sometimes referred to as considering inflation, it does not simply rely on an inflation index (cost estimates submitted to the Environmental Protection Agency usually include a prescribed inflation factor) and should take into account factors such as productivity improvements due to learning from experience with similar sites and similar remedial action plans. In situations in which it is not practicable to estimate inflation and such other factors because of uncertainty about the timing of expenditures, a current-cost estimate would be the minimum in the range of the liability to be recorded until such time as these cost effects can be reasonably estimated.
410-30-30-18
When an overall liability is estimated by combining estimates of various components of the liability, additional possible losses present in the component estimates must be considered in determining an overall additional possible loss.
410-30-30-19
A probable recovery shall be measured at its undiscounted amount if both of the following criteria are met:
  1. a
    The liability is not discounted.
  2. b
    The timing of the recovery is dependent on the timing of the payment of the liability.
For implementation guidance on the second criterion, see paragraph 410-30-55-6.

410-30-35Subsequent Measurement

Source downloaded: .Record version 5f9a00ac62df. Effective date must be checked in the source.

Changes in Estimates

410-30-35-1
Changes in estimates of the entity's remediation liability, including revisions to the entity's estimate of its share of the liability due to negotiation or identification of other potentially responsible parties, shall be accounted for as changes in estimates (see Topic 250).

Effects of Expected Future Events and Developments

410-30-35-2
Additional complexities arise if other potentially responsible parties are involved in an identified site. The costs associated with remediation of a site ultimately will be assigned and allocated among the various potentially responsible parties. The final allocation of costs may not be known, however, until the remediation effort is substantially complete, and it may or may not be based on an entity's relative direct responsibility at a site. An entity's final obligation depends, among other things, on the willingness of the entity and other potentially responsible parties to negotiate a cost allocation, the results of the entity's negotiation efforts, and the ability of other potentially responsible parties associated with the particular site to fund the remediation effort.
410-30-35-3
The time period necessary to remediate a particular site may extend several years, and the laws governing the remediation process and the technology available to complete the remedial action may change before the remedial action is complete. Additionally, the impact of inflation and productivity improvements can change the estimates of costs to be incurred.
410-30-35-4
The impact of changes in laws, regulations, and policies shall be recognized when such changes are enacted or adopted.
410-30-35-5
Once a methodology has been approved, that methodology and the technology available shall be the basis for estimating the liability until it is probable that there will be formal acceptance of a revised methodology.

Impairment Tests

410-30-35-6
For guidance on impairment tests of assets subject to asset retirement obligations, see paragraphs
360-10-35-18 through 35-19
.

Impact of Potential Recoveries

410-30-35-8
Potential recoveries of amounts expended for environmental remediation are distinguishable from the allocation of costs subject to joint and several liability, which is discussed in paragraphs
410-30-30-1 through 30-7
. Potential recoveries may be claimed from a number of different parties or sources, including insurers, potentially responsible parties other than participating potentially responsible parties (see paragraph 410-30-30-2), and governmental or third-party funds. The amount of an environmental remediation liability should be determined independently from any potential claim for recovery, and an asset relating to the recovery shall be recognized only when realization of the claim for recovery is deemed probable. The term probable is used in this Subtopic with the specific technical meaning in paragraph 450-20-25-1.
410-30-35-9
If the claim is the subject of litigation, a rebuttable presumption exists that realization of the claim is not probable.
410-30-35-10
The amount of a potential recovery is measured based on available information and the specific situation (see paragraph 410-30-30-15). As indicated in paragraphs
410-30-30-12 through 30-15
, measurement of a potential recovery requires consideration of transaction costs related to the receipt of the recovery. The time value of money shall be considered in the measurement of a potential recovery when the measurement of the liability considers the time value of money.
410-30-35-11
However, the time value of money should not be considered in the determination of the recorded amount of a potential recovery if the liability is not discounted and the timing of the recovery is dependent on the timing of the payment of the liability. In most circumstances, the point in time at which a liability for environmental remediation is both probable and reasonably estimable will precede the point in time at which any related recovery is probable of realization.
410-30-35-12
The measurement of the liability, or of a component of the liability, may be discounted to reflect the time value of money if the aggregate amount of the liability or component and the amount and timing of cash payments for the liability or component are fixed or reliably determinable. (Note that these criteria would not be met in situations in which paragraph 410-30-30-17 permits use of a current-cost estimate.) For this purpose, the amount of the liability or component is the reporting entity's allocable share of the undiscounted joint and several liability for the remediation effort or of a component of that liability.
410-30-35-12A
Paragraph 410-30-30-19 states criteria under which a probable recovery shall be measured at its undiscounted amount.

Tangible Assets Acquired to Treat Environmental Contamination

410-30-35-14
Tangible assets that have been capitalized under paragraph 410-30-25-19 shall be depreciated over their remaining useful lives.

410-30-45Other Presentation Matters

Source downloaded: .Record version fecd9e87be66. Effective date must be checked in the source.

410-30-45-1
An entity's balance sheet may include several assets that relate to an environmental remediation obligation. Among them are the following:
  1. a
    Receivables from other potentially responsible parties that are not providing initial funding
  2. b
    Anticipated recoveries from insurers
  3. c
    Anticipated recoveries from prior owners as a result of indemnification agreements.
410-30-45-2
A debtor that has a right of setoff that meets all of the conditions in paragraph 210-20-45-1 may offset the related asset and liability and report the net amount. It would be rare, if ever, that the facts and circumstances surrounding environmental remediation liabilities and related receivables and potential recoveries would meet all of these conditions.
410-30-45-4
Furthermore, it is particularly difficult to substantiate the classification of environmental remediation costs as a component of nonoperating expenses. Because the events underlying the incurrence of the obligation relate to an entity's operations, remediation costs shall be charged against operations. Although charging the costs of remediating past environmental impacts against current operations may appear debatable because of the time between the contribution or transportation of waste materials containing hazardous substances to a site and the subsequent incurrence of remediation costs, environmental remediation-related expenses have become a regular cost of conducting economic activity. Accordingly, environmental remediation-related expenses shall be reported as a component of operating income in income statements that classify items as operating or nonoperating. Credits arising from recoveries of environmental losses from other parties shall be reflected in the same income statement line. Any earnings on assets that are reflected on the entity's financial statements and are earmarked for funding its environmental liabilities shall be reported as investment income.
410-30-45-5
Environmental remediation-related expenses and related recoveries attributable to discontinued operations that were accounted for as such in accordance with Subtopic 205-20 shall be classified as discontinued operations.

410-30-50Disclosure

Source downloaded: .Record version fad8d223328f. Effective date must be checked in the source.

410-30-50-1
Disclosure issues are discussed in the context of the following:
  1. a
    Accounting principles
  2. b
    Environmental remediation loss contingencies
  3. c
    Environmental remediation costs recognized currently
  4. d
    Conclusions on loss contingencies and other matters.
410-30-50-2
The disclosures discussed in these contexts are two-tiered:
  1. a
    Disclosures that are required
  2. b
    Disclosures that are encouraged, but not required.
410-30-50-3
This Subtopic does not discourage entities from disclosing additional information that they believe will further users' understanding of the entity's financial statements.

Disclosures that Are Required

410-30-50-4
With respect to environmental remediation obligations, financial statements shall disclose whether the accrual for environmental remediation liabilities is measured on a discounted basis. If an entity utilizes present-value measurement techniques, additional disclosures are appropriate, and are discussed further in paragraph 410-30-50-7 (see paragraph 410-30-55-14).
410-30-50-5
Subtopic 450-20 provides the primary guidance applicable to disclosures of environmental remediation loss contingencies.
410-30-50-6
The disclosure requirements of Subtopic 275-10 also apply to environmental remediation liabilities. Example 1 (paragraph 410-30-55-7) illustrates the application of those disclosure requirements.
410-30-50-7
With respect to recorded accruals for environmental remediation loss contingencies and assets for third-party recoveries related to environmental remediation obligations, financial statements shall disclose if any portion of the accrued obligation is discounted, the undiscounted amount of the obligation, and the discount rate used in the present-value determinations.

Disclosures that Are Encouraged but Not Required

410-30-50-8
Because environmental remediation costs have become increasingly significant, and because the accounting for many environmental loss contingencies often involves subjective judgments, disclosure of accrual benchmarks for remediation obligations is useful to further users' understanding of the entity's financial statements. Accordingly, entities are encouraged, but not required, to disclose the event, situation, or set of circumstances that generally triggers recognition of loss contingencies that arise out of the entity's environmental remediation-related obligations (for example, during or upon completion of the feasibility study). Also, entities are encouraged to disclose their policy concerning the timing of recognition of recoveries. (See Example 2 [paragraph 410-30-55-14].)
410-30-50-9
Uncertainties associated with environmental remediation loss contingencies are pervasive, and they often result in wide ranges of reasonably possible losses with respect to such contingencies. Further, resolution of the uncertainties and the cash-flow effects of the loss contingencies often occur over a span of many years. Accordingly, this Subtopic encourages, but does not require, additional specific disclosures with respect to environmental remediation loss contingencies that would be useful to further users' understanding of the entity's financial statements.
410-30-50-10
Entities also are encouraged (see paragraph
410-30-55-15 through 55-16
), but not required, to disclose the following:
  1. a
    The estimated time frame of disbursements for recorded amounts if expenditures are expected to continue over the long term
  2. b
    The estimated time frame for realization of recognized probable recoveries, if realization is not expected in the near term
  3. c
    If an estimate of the probable or reasonably possible loss or range of loss cannot be made, the reasons why it cannot be made
  4. d
    If information about the reasonably possible loss or the recognized and additional reasonably possible loss for an environmental remediation obligation related to an individual site is relevant to an understanding of the financial position, cash flows, or results of operations of the entity, the following with respect to the site:
    1. 1
      The total amount accrued for the site
    2. 2
      The nature of any reasonably possible loss contingency or additional loss, and an estimate of the possible loss or the fact that an estimate cannot be made and the reasons why it cannot be made
    3. 3
      Whether other potentially responsible parties are involved and the entity's estimated share of the obligation
    4. 4
      The status of regulatory proceedings
    5. 5
      The estimated time frame for resolution of the contingency.
410-30-50-11
Entities also are encouraged, but not required, to disclose the estimated time frame for resolution of the uncertainty as to the amount of the loss (see paragraph 410-30-55-17).
410-30-50-12
Entities are encouraged but not required to disclose the amount of environmental remediation costs recognized in the income statement in the following detail:
  1. a
    The amount recognized for environmental remediation loss contingencies in each period
  2. b
    The amount of any recovery from third parties that is credited to environmental remediation costs in each period
  3. c
    The income statement caption in which environmental remediation costs and credits are included.
See paragraphs
410-30-55-14 through 55-15
.

Disclosure Related to Loss Contingencies

410-30-50-13
Whether notification by regulatory authorities in relation to particular environmental laws and regulations constitutes the assertion of a claim is a matter of legal determination. If an entity concludes that it has no current legal obligation to remediate a situation of probable or possible environmental impact, then in accordance with paragraph 450-20-50-6 no disclosure is required. However, if an entity is required by existing laws and regulations to report the release of hazardous substances and to begin a remediation study or if assertion of a claim is deemed probable, the matter would represent a loss contingency subject to the disclosure provisions of paragraphs
450-20-50-3 through 50-4
, regardless of a lack of involvement by a regulatory agency.
410-30-50-14
Financial statements may include a contingency conclusion that addresses the estimated total unrecognized exposure to environmental remediation and other loss contingencies. Such contingency conclusions may state, for example, that "management believes that the outcome of these uncertainties should not have [or "may have"] a material adverse effect on the financial condition, cash flows, or operating results of the entity." Alternatively, the disclosure may indicate that the adverse effect could be material to a particular financial statement or to results and cash flows of a quarterly or annual reporting period.
410-30-50-15
Although potentially useful information, these conclusions are not a substitute for the required disclosures of this Subtopic and of Subtopic 450-20, such as their requirement to disclose the amounts of material reasonably possible additional losses or to state that such an estimate cannot be made.
410-30-50-16
Also, the assertion that the outcome should not have a material adverse effect must be supportable. If the entity is unable to estimate the maximum end of the range of possible outcomes, it may be difficult to support an assertion that the outcome should not have a material adverse effect.
410-30-50-17
Entities may wish to provide a description of the general applicability and impact of environmental laws and regulations upon their business and how the existence of such laws and regulations may give rise to loss contingencies for future environmental remediation. Such disclosures often acknowledge the uncertainty of the effect of possible future changes to environmental laws and their application, and they are frequently made on an aggregated basis, considering the entity's total exposures for all its environmental sites.

410-30-55Implementation Guidance and Illustrations

Source downloaded: .Record version 137bd075e233. Effective date must be checked in the source.

Implementation Guidance

410-30-55-1
This implementation guidance illustrates paragraphs
410-30-30-10 through 30-11
. Examples of incremental direct costs of the remediation effort include the following:
  1. a
    Fees to outside law firms for work related to determining the extent of remedial actions that are required, the type of remedial actions to be used, or the allocation of costs among potentially responsible parties
  2. b
    Costs related to completing the remedial investigation-feasibility study
  3. c
    Fees to outside engineering and consulting firms for site investigations and the development of remedial action plans and remedial designs
  4. d
    Costs of contractors performing remedial actions
  5. e
    Governmental oversight costs and past costs; usually this is based on the cost incurred by the Environmental Protection Agency or other governmental authority dealing with the site
  6. f
    The cost of machinery and equipment that is dedicated to the remedial actions and that does not have an alternative use
  7. g
    Assessments by a potentially responsible party group covering costs incurred by the group in dealing with a site
  8. h
    Costs of operation and maintenance of the remedial action, including the costs of postremediation monitoring required by the remedial action plan.
410-30-55-2
Examples of employees who may devote a significant amount of time directly to the remediation effort include the following:
  1. a
    The internal legal staff that is involved with the determination of the extent of remedial actions that are required, the type of remedial action to be used, and the allocation of costs among potentially responsible parties
  2. b
    Technical employees who are involved with the remediation effort.
410-30-55-3
Estimates of the compensation and benefits costs to be incurred for a specific site should be made in connection with the initial recording of the remediation liability and subsequently adjusted at each reporting date to reflect the current estimate of such costs to be incurred in the future.
410-30-55-4
There are numerous ways to allocate liabilities among potentially responsible parties. The four principal factors considered in a typical allocation process are the following:
  1. a
    Elements of fair share. Examples are the amount of waste based on volume; the amount of waste based on mass, type of waste, toxicity of waste; the length of time the site was used.
  2. b
    Classification of potentially responsible party. Examples are site owner, site operator, transporter of waste, generator of waste.
  3. c
    Limitations on payments. This characteristic includes any statutory or regulatory limitations on contributions that may be applicable to a potentially responsible party. For example, in the reauthorization of the Comprehensive Environmental Response, Compensation, and Liability Act, it has been proposed that the statute limit the contribution of a municipality to 10 percent of the total remediation liability, irrespective of the municipality's allocable share.
  4. d
    Degree of care. This refers to the degree of care exercised in selecting the site or in selecting a transporter.
410-30-55-5
Potentially responsible parties may reach an agreement among themselves as to the allocation method and percentages to be used, they may hire an allocation consultant whose conclusions may or may not be binding, or they may request a nonbinding allocation of responsibility from the Environmental Protection Agency. The allocation method or percentages used may change as the remediation project moves forward. An agreement to reallocate the preliminarily allocated liability at the end of the remediation project may exist, or the allocation percentages may be adjusted during the project to reflect prior allocations that subsequently are agreed to have been inequitable. This implementation guidance illustrates paragraph 410-30-30-1.
410-30-55-6
This implementation guidance addresses the criterion in paragraph 410-30-30-19(b) involving the dependency of the timing of the recovery on the timing of the payment of the liability. That criterion would usually be met, for example, if an insurance entity agrees, in accordance with the terms of an insurance contract, to reimburse the reporting entity for all or a percentage of the remediation costs incurred by the reporting entity as the reporting entity expends money to satisfy its obligation. That criterion likely would not be met, for example, in a lump-sum buyout by an insurance entity of contested coverage.

Illustrations

410-30-55-7
This Example illustrates application of the disclosure requirements of Subtopic 275-10.
410-30-55-8
Ace Oil Company is a distributor of heating oil with four storage and distribution facilities located in Anystate. Federal, state, and local laws and regulations govern the operation of the entity's facilities. The entity has determined that, beginning in the coming year, a significant number of its storage tanks and a significant amount of its other equipment will need to be removed, replaced, or modified to satisfy regulations that go into effect in varying stages over the next seven years. In addition, the entity has a present obligation to decontaminate the soil in the near term at its largest facility.
410-30-55-9
The entity hired a consultant to evaluate the technological, regulatory, and legal factors involved. Based on the consultant's findings, the entity estimated that total environmental expenditures over the next 7 years related to the tanks and equipment will aggregate approximately $5 million. Of this amount, approximately $4.75 million represents capital expenditures, which are expected to be recoverable through operations. The existing tanks have a net book value of $500,000, and the equipment has a net book value of $475,000. The cost of soil decontamination is estimated to be at least $1 million, which is material to the entity's operations, and may be as high as $3 million. Exposure to legal liability to third parties is considered remote.
410-30-55-10
The consultant has demonstrated substantial experience with similar sites, and the technical aspects of upgrading storage facilities and decontaminating soil appear to be fairly straightforward.
410-30-55-11
The entity would disclose the following. (The italicized text illustrates the voluntary disclosure that is encouraged by paragraph 275-10-50-9.)
  • The entity will begin a project to decontaminate the soil at its Anytown, Anystate facility in the coming year. The entity estimates the cost of decontamination to total at least $1 million and has accrued that amount as an operating expense in the current year. The ultimate cost, however, will depend on the extent of contamination found as the project progresses and may be as much as $3 million. The entity expects decontamination to be substantially completed within one year.
410-30-55-12
This disclosure informs financial statement users of the existence of the soil contamination problem at the financial statement date and indicates that the liability is susceptible to change in the near term. This Subtopic does not require disclosure of the capital commitment because it is not a present obligation for which an estimate is reflected in the entity's financial statements.
410-30-55-13
Although, in this Example, the near-term nature of the possible change is indicated by a statement that the entity expects decontamination to be substantially completed within one year, an expectation that decontamination will take more than one year to complete would not preclude the estimate from being susceptible to near-term change. In such cases, the disclosure could be worded to specifically refer to the near term.
410-30-55-14
This Example illustrates the guidance in paragraph 410-30-50-4 for accounting policies note disclosure for environmental remediation-related costs (information that is enclosed in brackets is not required).
  • Environmental Remediation Costs—[Entity A accrues for losses associated with environmental remediation obligations when such losses are probable and reasonably estimable. Accruals for estimated losses from environmental remediation obligations generally are recognized no later than completion of the remedial feasibility study. Such accruals are adjusted as further information develops or circumstances change.] Costs of future expenditures for environmental remediation obligations are not discounted to their present value. [Recoveries of environmental remediation costs from other parties are recorded as assets when their receipt is deemed probable.]
410-30-55-15
This Example illustrates the guidance in paragraph 410-30-50-10 for disclosure for a situation in which all of the following conditions exist:
  1. a
    An entity is involved in a single environmental site at which a number of potential outcomes may occur.
  2. b
    There is a probable, reasonably estimable recovery from a third party.
  3. c
    The entity has accrued for the most likely outcome within a range of possible outcomes for each component.
  4. d
    The nature of the amounts accrued for remediation and the related probable recovery are necessary to be disclosed in order for the financial statements not to be misleading.
  5. e
    There is a reasonably possible loss exposure in excess of the amount accrued that is material and it is reasonably possible that a change in estimate that would be material to the financial statements will occur in the near term.
410-30-55-16
The entity would make the following disclosure (information that is enclosed in brackets is not required).
  • Entity A has been notified by the Environmental Protection Agency that it is a potentially responsible party under Superfund legislation [with respect to XYZ site in Sometown, USA, a disposal site previously used in its chemical-fertilizer business. The Environmental Protection Agency has also identified 10 other potentially responsible parties for XYZ. A remedial investigation and feasibility study has been completed, and the results of that study have been forwarded to the Environmental Protection Agency. The study indicates a range of viable remedial approaches, but agreement has not yet been reached with the Environmental Protection Agency on the final remediation approach. The potentially responsible party group has preliminarily agreed to an allocation that sets Entity A's share of the cost of remediating XYZ site at 6 percent.] Entity A has accrued its best estimate of its obligation with respect to the site at December 31, 199X, [which is $10 million and which is included in long-term liabilities and is expected to be disbursed over the next 10 years. If certain of the potentially responsible parties are ultimately not able to fund their allocated shares or the Environmental Protection Agency insists on a more expensive remediation approach,] Entity A could incur additional obligations of up to $7 million. It is reasonably possible that Entity A's recorded estimate of its obligation may change in the near term.
  • With respect to the environmental obligation discussed above, the site was acquired in 1982, and, in connection with that acquisition, the former owner partially indemnified Entity A for environmental impacts occurring before the acquisition. [Based on existing documentation indicating the years in which the business shipped wastes to XYZ and the terms of the indemnification in the acquisition agreement,] Entity A [believes it is probable that it will recover from the prior owners 50 percent of its allocated remediation costs for XYZ and, accordingly,] has recorded a receivable of $5 million at December 31, 199X.
410-30-55-17
This Example illustrates the guidance in paragraph 410-30-50-11. An entity would make the following disclosure of a probable but not yet reasonably estimable environmental remediation loss contingency (information that enclosed in brackets is not required).
  • Entity A has been notified by the Environmental Protection Agency that it is a potentially responsible party with respect to environmental impacts [identified at the XYZ site in Sometown, USA. Several meetings have been held with the Environmental Protection Agency and the other identified potentially responsible parties, and a remedial investigation has recently commenced]. Although a loss is probable, it is not possible at this time to reasonably estimate the amount of any obligation for remediation [of XYZ site] that would be material to Entity A's financial statements [because the extent of environmental impact, allocation among the potentially responsible parties, remediation alternatives (which could involve no or minimal efforts), and concurrence of the regulatory authorities have not yet advanced to the stage where a reasonable estimate of any loss that would be material to the entity can be made]. [A reasonable estimate of a material obligation, if any, is expected to be possible in 199X.]
410-30-55-18
The following Cases illustrate the guidance in paragraphs
410-30-25-16 through 25-19
:
  1. a
    Tanker oil spill (Case A)
  2. b
    Rusty chemical storage tank (Case B)
  3. c
    Air pollution caused by manufacturing activities (Case C)
  4. d
    Lead pipes in office building that contaminate drinking water (Case D)
  5. e
    Soil contamination caused by an operating garbage dump (Case E)
  6. f
    Water well contamination (Case F)
  7. g
    Underground gasoline storage tank leak (Case G)
  8. h
    Air in office building contaminated with asbestos fibers (Case H).
410-30-55-19
The following table provides a summary for determining whether costs to treat environmental contamination should be capitalized or charged to expense.
  • "Environmental Contamination, Treatments" Evaluation of Criteria Tanker Oil Spill: A. Clean up waterway and beachfront 1. Costs to clean up the waterway and beachfront are not eligible for consideration under the first criterion because the oil company does not own the property. 2. The cleanup of the waterway and beachfront does not mitigate or prevent a future oil spill from future operations. "3. The waterway and beachfront are not owned assets and, therefore, the third criterion does not apply." Conclusion: Costs incurred for cleanup and restoration in connection with the oil spill should be charged to expense. B. Reinforce tanker's hull to reduce risk of future spill 1. Reinforcing the hull improves the tanker's safety compared to when the tanker was originally constructed or acquired. 2. Reinforcing the hull mitigates the risk that the tanker will experience a similar oil spill during future operations and improves the tanker's safety compared to when the tanker was originally constructed or acquired. Conclusion: The costs incurred in connection with reinforcing the tanker's hull may be capitalized under either the first or second criterion.
410-30-55-20
The following table provides a summary for determining whether costs to treat environmental contamination should be capitalized or charged to expense.
  • "Environmental Contamination, Treatments" Evaluation of Criteria Rusty Chemical Storage Tank: A. Remove rust that developed during ownership 1. Removing the rust has not improved the tank compared with its condition when built or acquired. "2. Removing the rust has mitigated the possibility of future leaks. However, removing the rust has not improved the tank compared with its condition when built or acquired." Conclusion: Rust removal costs should be expensed unless the tank is currently held for sale and the costs were incurred to prepare the tank for sale. B. Apply rust prevention chemicals 1. The application of rust prevention chemicals has improved the tank's condition compared with its condition when built or acquired. 2. Rust prevention chemicals mitigate the possibility that future rust will cause leaks and also improve the tank's condition compared with its condition when built or acquired. Conclusion: The costs of applying the rust prevention chemicals may be capitalized under either the first or second criterion.
410-30-55-21
The following table provides a summary for determining whether costs to treat environmental contamination should be capitalized or charged to expense.
  • "Environmental Contamination, Treatments" Evaluation of Criteria Air Pollution Caused by Manufacturing Activities: A. Acquire and install pollution control equipment 1. The pollution control equipment improves the safety of the plant compared with its condition when built or acquired. 2. The pollution control equipment mitigates or prevents air pollution that has yet to occur but that may otherwise result from future operation of the plant and improves the safety of the plant compared with its condition when built or acquired. Conclusion: Costs associated with acquisition and installation of the pollution control equipment may be capitalized under either the first or second criterion. B. Pay fines for violations of the Clean Air Act "1. Payment of fines does not extend the plant's life, increase its capacity, or improve its efficiency or safety." 2. Payment of fines does not mitigate or prevent pollution that has yet to occur but that may otherwise result from future operation of the plant. "Conclusion: Fines paid in connection with violations of the Clean Air Act should be charged to expense. Even if the plant is currently held for sale, the fines should be charged to expense because the costs would not have been incurred to prepare the plant for sale."
410-30-55-22
The following table provides a summary for determining whether costs to treat environmental contamination should be capitalized or charged to expense.
  • "Environmental Contamination, Treatments" Evaluation of Criteria Lead Pipes in Office Building Contaminate Drinking Water: A. Remove lead pipes and replace with copper pipes 1. Removing the lead pipes has improved the safety of the building's water system compared with its condition when the water system was built or acquired. "2. By removing the lead pipes, the building's owner eliminated an existing environmental problem and prevented any further contamination from that lead. However, by removing the existing pipes, the building's owner has not mitigated or prevented environmental problems yet to occur, if any, from future operation of the building." Conclusion: Costs to remove the lead pipes and install copper pipes may be capitalized under the first criterion. The book value of the lead pipes should be charged to expense when removed.
410-30-55-23
The following table provides a summary for determining whether costs to treat environmental contamination should be capitalized or charged to expense.
  • "Environmental Contamination, Treatments" Evaluation of Criteria Soil Contamination Caused by an Operating Garbage Dump: A. Refine soil on dump property "1. The life of a garbage dump is not extended by refining its soil. Further, the condition of the soil after refining will not be improved over its condition when the garbage dump was constructed or acquired. Removal of the toxic waste restores the soil to its original uncontaminated condition." "2. Removal of toxic waste from the soil addresses an existing environmental concern. It also prevents that waste from leaching in the future. However, removing the waste does not mitigate or prevent future operations from creating future toxic waste. The risk will continue regardless of how much of the existing soil is refined." Conclusion: Soil refinement costs should be charged to expense unless the garbage dump is currently held for sale and the costs were incurred to prepare the garbage dump for sale. B. Install liner "1. The liner does not extend the useful life or improve the efficiency or capacity of the garbage dump. However, the liner has improved the garbage dump's safety compared to when the dump was constructed or acquired." "2. The liner addresses an existing and potential future problem. In this example, the garbage dump contains toxic waste from past operations and will likely generate toxic waste during future operations. The liner partly addresses the existing environmental problem by preventing future leaching of existing toxic waste into the soil. The liner also mitigates or prevents leaching of toxic waste that may result from garbage dumping in future periods and has improved the garbage dump's safety compared to when the dump was constructed or acquired." Conclusion: The liner may be capitalized under either the first or second criterion.
410-30-55-24
The following table provides a summary for determining whether costs to treat environmental contamination should be capitalized or charged to expense.
  • "Environmental Contamination, Treatments" Evaluation of Criteria Water Well Contamination Caused by Chemicals That Leaked into Wells Containing Water That Will Be Used in Future Beer Production: A. Neutralize water in wells "1. The treatment does not extend the life of the wells, increase their capacity, or improve efficiency. The condition of the water is not safer after the treatment compared to when the wells were initially acquired." "2. By neutralizing the water, the possibility of future contamination of the wells from future operations has not been mitigated or prevented." Conclusion: Costs incurred to neutralize well water should be charged to expense unless the wells were held for sale and the costs were incurred to prepare the wells for sale. B. Install water filters 1. The water filters improve the safety of the wells compared with their uncontaminated state when built or acquired. "2. The water filters address future problems that may result from future operations. Since the water filters are effective in filtering environmental contamination, they mitigate the effect of spilling new contaminants into the wells during future operations. In addition, the water filters represent an improvement compared with the wells' original condition without water filters." Conclusion: The water filtering system may be capitalized under either the first or the second criterion.
410-30-55-25
The following table provides a summary for determining whether costs to treat environmental contamination should be capitalized or charged to expense.
  • "Environmental Contamination, Treatments" Evaluation of Criteria Underground Gasoline Storage Tanks Leak and Contaminate the Company's Property: A. Refine soil "1. Soil refinement does not extend the useful life, increase the capacity, or improve the efficiency or safety of the land relative to its unpolluted state when acquired." "2. By refining the contaminated soil, the oil company has addressed an existing problem. However, the company has not mitigated or prevented future leaks during future operations." Conclusion: Soil refining costs should be charged to expense unless the property is currently held for sale and the costs were incurred to prepare the property for sale. B. Encase tanks so as to prevent future leaks from contaminating surrounding soil "1. In some cases, encasement may increase the life of the tanks because of their increased resistance to corrosion, leaking, etc. In other situations, the treatment may not increase the life of the tanks. However, the encasement has improved the tanks' safety compared with their condition when built or acquired." "2. Encasement has mitigated or prevented future leakage and soil contamination that might otherwise result from future operations. In addition, the encasement has improved the tanks' safety compared with their condition when built or acquired." Conclusion: The cost of encasement may be capitalized under either the first or the second criterion.
410-30-55-26
The following table provides a summary for determining whether costs to treat environmental contamination should be capitalized or charged to expense.
  • "Environmental Contamination, Treatments" Evaluation of Criteria Air in Office Building Contaminated with Asbestos Fibers: A. Remove asbestos 1. Removal of the asbestos improves the building's safety over its original condition since the environmental contamination (asbestos) existed when the building was constructed or acquired. "2. By removing the asbestos, the building's owner has eliminated an existing problem and has prevented any further contamination from that asbestos. However, by removing the existing asbestos, the building's owner has not mitigated or prevented new environmental problems, if any, that might result from future operation of the building." Conclusion: Asbestos removal costs may be capitalized as a betterment under the first criterion.
410-30-55-27
This Example illustrates the application of the recognition and measurement guidance provided in Sections 410-30-25 and 410-30-30; it does not illustrate all disclosure requirements set forth in this Subtopic.
410-30-55-28
Prior to 1980, the XYZ Manufacturing Company contracted with a state-licensed waste hauling contractor to remove specified, nonhazardous solid and liquid industrial waste from one of its plants for disposal off-site at a state-licensed disposal facility. A purchase order was let, and the work was performed. The contractor complied with all applicable laws and regulations, and monthly reports were filed with appropriate state environmental agencies.
410-30-55-29
In 1986, the entity received an information request from the Environmental Protection Agency pursuant to section 104 of the Comprehensive Environmental Response, Compensation, and Liability Act of 1980. The information request stated that the Environmental Protection Agency believed that hazardous substances at a site, now listed by the Environmental Protection Agency on its National Priorities List, were generated at XYZ's plant. XYZ was named as a potentially responsible party and was directed by the Environmental Protection Agency, under penalty of law, to search its records exhaustively and answer a series of questions possibly implicating it directly to the site, or indirectly by its having used one or more transporters the Environmental Protection Agency said it was also investigating.
410-30-55-30
XYZ searched its records as directed and determined late in 1986 that it had, in fact, contributed hazardous substances to the site. XYZ could not, however, determine how significant the hazardous substances it had sent to the site were in relation to the total population of hazardous substances at the site. The minimum remediation cost, including a minimum amount of legal fees, that XYZ was able to estimate was not material to its financial statements. XYZ was able, however, to determine that it was reasonably possible that its ultimate liability could be material.
410-30-55-31
In 1987 the Environmental Protection Agency identified a number of waste generators, transporters, and site owner-operators as likely potentially responsible parties. The identified potentially responsible parties were invited to a meeting at which government lawyers requested that one or more of the potentially responsible parties voluntarily perform a remedial investigation-feasibility study to evaluate existing site conditions (including a public health and ecological risk assessment) and to develop a proposed array of remedial alternatives from which the Environmental Protection Agency would select a remedy and demand that it be implemented. Standardized Environmental Protection Agency terms and conditions, stipulated penalty provisions, and indeterminate scope of work elements inhibited voluntary agreement among the potentially responsible parties, and so a consent decree was not achieved.
410-30-55-32
In 1988 the Environmental Protection Agency asserted the existence of "imminent and substantial endangerment" at the site early in 1988 under section 106 of the Comprehensive Environmental Response, Compensation, and Liability Act, and it issued a unilateral administrative order to the potentially responsible party with the deepest pockets—XYZ—to undertake the remedial investigation-feasibility study.
410-30-55-33
Because triple damages are authorized under section 106 of the Comprehensive Environmental Response, Compensation, and Liability Act, XYZ agreed to conduct the remedial investigation-feasibility study specified in the order and demanded that other identified potentially responsible parties participate in the effort. XYZ initially estimated the cost that would be incurred to perform the remedial investigation-feasibility study to be between $1 million and $2 million. Based on the limited information that was available about the site, information that XYZ had about its contribution to the site, and the number and financial condition of other potentially responsible parties, XYZ initially estimated that its ultimate share of this cost would prove to be in the range of 20 percent to 50 percent. XYZ also estimated that it would incur legal costs related to the remediation effort of $200,000 to $2 million in addition to any legal costs that might be incurred by any potentially responsible party group that might be formed. No amounts within any of these ranges were considered to be better estimates than any other amounts within any of these ranges. Because of a lack of information about the type and extent of the remediation effort that could be required, no range of cost of the overall remediation effort could be developed at this time.
410-30-55-34
Under threat of a contribution lawsuit by XYZ, a potentially responsible party group was formed late in 1988. The potentially responsible party group had the following three objectives:
  1. a
    To implement the requirements of the unilateral administrative order in the most cost-effective and scientifically valid way
  2. b
    To raise money and allocate costs among the potentially responsible parties willing to perform the work based on the types and relative quantities of wastes shipped to the site or another agreed-upon formula
  3. c
    To recover costs from nonparticipating potentially responsible parties, if possible.
410-30-55-35
Because of the lack of a good data base of factual information upon which to make sound allocation decisions agreeable to all, outside arbitration was used in 1989 to allocate fair share costs among participating potentially responsible parties. The arbitrator preliminarily apportioned 65 percent of the costs for the site to the four participating potentially responsible parties, as follows.
  • XYZ 20% Potentially responsible party No. 2 20 Potentially responsible party No. 3 15 Potentially responsible party No. 4 10 65% Orphan share 25 Recalcitrant share 10 100%
410-30-55-36
Twenty-five percent of the site was determined to be the orphan share, for which no potentially responsible party could be identified. Ten percent was attributed to two recalcitrant (nonparticipating) potentially responsible parties, and there was insufficient information to overcome the presumption that costs will be allocated only among the participating potentially responsible parties.
410-30-55-37
XYZ gained some understanding of the other participating potentially responsible parties' financial condition and believed each of them was able and likely to pay its full share of the costs of the remedial investigation-feasibility study. XYZ was concerned, however, about the ability of potentially responsible party No. 3 to pay its full share of the cost of the overall remediation effort.
410-30-55-38
Based on the amount already spent on legal costs and the results of potentially responsible party organization efforts, XYZ determined that $350,000 was the best estimate of its separate legal costs. The estimate of the costs that will be incurred to perform the remedial investigation-feasibility study, which now included group administration costs, now stood at $1.2 million to $2.2 million.
410-30-55-39
The remedial investigation-feasibility study was substantially completed in 1991. No changes were made to the potentially responsible parties allocation percentages as a result of the remedial investigation-feasibility study completion. The potentially responsible party group's initial estimate of the cost of implementing the remedy expected to be required by the Environmental Protection Agency was $25 million to $30 million. No amount within this range was considered to be a better estimate than any other amount within the range. This estimate included estimates of the cost of all elements of the remediation effort, including common legal, engineering, construction, monitoring, operation and maintenance costs (including postremediation monitoring for a period of 30 years), and so forth.
410-30-55-40
XYZ believed that potentially responsible party No. 2 and potentially responsible party No. 4 could and would pay their full shares of the cost of the remediation effort. Potentially responsible party No. 3, however, indicated that, because of its deteriorating financial position, it would likely be unable to pay more than two-thirds of its 15 percent share and none of its allocated amount attributed to the orphan and recalcitrant shares, or 10 percent of those costs. XYZ shared potentially responsible party No. 3's views about potentially responsible party No. 3's ability to pay.
410-30-55-41
Three years after site studies began, the Environmental Protection Agency and its outside contractors evaluated the reports submitted under the terms of the unilateral administrative order. A record of decision was issued by the Environmental Protection Agency on September 30, 1992, in which remedial actions based on the remedial investigation-feasibility study were selected and cost estimates were presented. The potentially responsible parties were requested to voluntarily implement the record of decision and again sign up to the terms demanded by the government. No preenforcement federal court review is permitted, even if the remedy specified in the record of decision is scientifically flawed, unattainable by available, proven technology, non-cost-effective, or open-ended. The potentially responsible parties had the following choices: perform the remedy specified in the record of decision voluntarily, or refuse to do work, in which case the Environmental Protection Agency would either issue another unilateral administrative order or perform the work using its contractor procurement systems and sue the potentially responsible parties for cost recovery. The potentially responsible parties agreed to perform the remedy specified in the record of decision and entered into a consent judgment.
410-30-55-42
Note that the law requires the Environmental Protection Agency to review the record of decision and remedy within five years of its implementation by the potentially responsible parties. If the objectives of the record of decision have not been attained, the Environmental Protection Agency may make additional demands on the potentially responsible parties. If one or more potentially responsible parties believe they have paid a disproportionate share of the costs, they may track down other potentially responsible parties and sue them in a contribution action. Although requests for reimbursement from Superfund can also be made for allocations attributed to unidentified or unknown parties (the orphan share) under certain conditions, this is not usually allowed by terms and conditions of consent order settlements withthe Environmental Protection Agency.
410-30-55-43
Subtopic 450-20 requires accrual of a loss contingency when it is probable that a liability has been incurred and the amount of the loss can be reasonably estimated. Receipt in 1986 of an information request did not establish that a liability was probable because, notwithstanding the Environmental Protection Agency's interest in XYZ's connection, if any, to the site, it had not been established that XYZ was in fact associated with the site. As noted in paragraph 410-30-25-4, however, receipt of notification that an entity may be a potentially responsible party compels the entity to action.
410-30-55-44
When XYZ determined late in 1986 that it had, in fact, contributed hazardous substances to the site, the liability became probable. The criteria for recognition had not yet been met, however, because XYZ did not have sufficient information to reasonably estimate a minimum amount in the range of its liability that would be material to its financial statements. Disclosure of the nature of the contingency and a statement that an estimate of the loss or range of loss cannot be made was required under Subtopic 450-20.
410-30-55-45
During 1987, little additional information that would aid XYZ in making an estimate of the loss or range of loss became available. Therefore, the accounting and disclosure for the contingent loss related to the remediation liability remained the same.
410-30-55-46
In 1988, when XYZ agreed to perform a remedial investigation-feasibility study in accordance with the Environmental Protection Agency's unilateral administrative order and the potentially responsible party group was formed, XYZ should have recorded a liability of $400,000, computed as follows.
  • "XYZ's estimated share of the minimum amount in the range of the estimated cost of the remedial investigation-feasibility study [20 percent of $1,000,000]" " $200,000 " XYZ's minimum estimate of its legal costs " 200,000 " " $400,000 "
410-30-55-47
Because other potentially responsible parties had agreed during 1988 to participate in the remedial investigation-feasibility study effort, they are considered to be participating potentially responsible parties. Neither the fact that the unilateral administrative order named only XYZ nor the fact that a preliminary cost-sharing formula had not yet been determined by the arbitrator should have required XYZ to accrue more than its estimated allocable share of the minimum estimated liability.
410-30-55-48
Although no recognition benchmarks were achieved in 1989 or 1990, XYZ should have refined its estimate of its liability as additional significant information became available. For example, in 1989, when the preliminary cost-sharing formula was developed by the arbitrator and the estimate of the cost of the remedial investigation-feasibility study was revised, XYZ should have refined its estimate of its share of the cost of the remedial investigation-feasibility study and adjusted its liability to $719,231, less any amounts already expended. $719,231 is computed as follows.
  • XYZ's allocable share of the minimum amount in the range of the estimated cost of the remedial investigation-feasibility study [20 percent of $1.2 million] " $240,000 " XYZ's pro rata share of amounts allocable to other parties but that are not expected to be paid by those other parties [20/65 of 35 percent of $1.2 million] " 129,231 " XYZ's estimated legal costs " 350,000 " " $719,231 "
410-30-55-49
By the time the feasibility study was substantially completed in 1991, XYZ should have adjusted its liability to reflect its estimated share of the minimum amount of the overall remediation liability. Based on the facts presented, this amount should be $9,350,000, less any amounts already expended. $9,350,000 is computed as follows.
  • 20% of $25 million " $5,000,000 " 20/65 of 35 percent of $25 million " 2,692,308 " 20/50 of amount allocable to potentially responsible party No. 3 that is not expected to be paid by potentially responsible party No. 3 [20/50 of 5 percent of $25 million plus 20/50 of 15/65 of 35 percent of $25 million] " 1,307,692 " Estimated legal costs " 350,000 " " $9,350,000 "
410-30-55-50
The estimate of the environmental remediation liability should be further refined when the record of decision is issued in 1992 and at various other points when additional information becomes available.
410-30-55-51
The measurement of the remediation liability should not have been discounted at any point during the period under discussion because the amount of the obligation and the amount and timing of cash payments were not fixed or reliably determinable.

410-30-S00StatusSEC

Source downloaded: .Record version 64a0adc4af6f. Effective date must be checked in the source.

410-30-S00-1
The following table identifies the changes made to this Subtopic.
ParagraphActionAccounting Standards UpdateDate
410-30-S35-1AddedAccounting Standards Update No. 2009-0709/15/2009

410-30-S30Initial MeasurementSEC

Source downloaded: .Record version 5bd3512b7e9c. Effective date must be checked in the source.

Appropriate Discount Rate to Be Applied to a Product or Environmental Remediation Liability

410-30-S30-1
See paragraph 450-20-S99-1, SAB Topic 5.Y, Question 1, for SEC Staff views on the discount rate to be used in measuring product or environmental remediation liabilities.

410-30-S35Subsequent MeasurementSEC

Source downloaded: .Record version bf95c8077bf7. Effective date must be checked in the source.

Appropriate Discount Rate to Be Applied to a Product or Environmental Remediation Liability

410-30-S35-1
See paragraph 450-20-S99-1, SAB Topic 5.Y, Accounting and Disclosures Relating to Loss Contingencies, Question 1.

410-30-S50DisclosureSEC

Source downloaded: .Record version 68ff935db4c0. Effective date must be checked in the source.

Disclosures Related to Discounting an Environmental Liability

410-30-S50-1
See paragraph 450-20-S99-1, SAB Topic 5.Y, Question 1, for SEC Staff views on disclosure requirements if an environmental remediation liability is recognized on a discounted basis.

Disclosure Related to Loss Contingencies

410-30-S50-2
See paragraph 450-20-S99-1, SAB Topic 5.Y, Question 2, for SEC Staff views on the financial statement disclosures that should be furnished with respect to product and environmental remediation liabilities.

Disclosures Related to Remediation Costs

410-30-S50-3
See paragraph 450-20-S99-1, SAB Topic 5.Y, Question 4, for SEC Staff views on disclosures pertaining to site restoration costs and other environmental remediation costs.

Related subtopics