FASB Accounting Standards Codification: 410 Asset Retirement and Environmental Obligations Abstract The purpose of this research paper is to summarize research on codification topic 410 based on the information found in different academic databases. The first part of the paper will focus on the FASB Codification database. The second part of the paper will compare and contrast three other databases on the same codification 410 within the RIA Checkpoint databases: AICPA: Auditing and Accounting Guides, SOX Reporter, and GAAP Practice Manual.
A summary of benefits and issues with the searches of each database will also be discussed. ? Codification 410 is divided into two subtopics, 410-20 and 410-30. Code 410 is listed under the financial reporting heading of liability. Subtopic 410-20 gives guidance on accounting for the financial reporting of a liability of an asset retirement obligation (and the associated asset retirement cost) and an environmental remediation liability that results from the normal operation of a long-lived asset (see paragraph 410-20-55-7).
Subtopic 410-30 provides guidance on accounting for and financial reporting of environmental remediation liabilities. (FASB Codification Liabilities, 410) Part A When I entered into the FASB Accounting Standards Codification website, I found that there weren’t a lot of choices to choose from regarding search criteria. This provided for very easy and simple search for information. There were categories listed based on categories of the financial statements on the left side of the web page. Beside each category is a drop down arrow which listed a category’s applicable codifications for the financial reporting for that category (i. . under liabilities there were deferred revenue and commitments). There is also a search box on upper left side of the screen where you could enter the specific code. I found codification 410 under the liability category. The liability drop down contained the codifications for liabilities. The 410 codification had two subtopics, 410-20 and 410-30, Asset Retirement Obligations and Environmental Obligations. Each of those subtopics brought up a table of contents (Table 1). I could locate information for each part of a topic by clicking on heading.
For instance, if I was interested in knowing how to properly determine the value of an asset, I would click on heading 410-20-30-Initial Measurement of an Asset. This brought up “Determination of a Reasonable Estimate of Fair Value” (FASB, Liabilities, 410-20-30) An expected present value technique will usually be the only appropriate technique with which to estimate the fair value of a liability for an asset retirement obligation. An entity, when using that technique, shall discount the expected cash flows using a credit-adjusted risk-free rate.
Thus, the effect of an entity’s credit standing is reflected in the discount rate rather than in the expected cash flows. Proper application of a discount rate adjustment technique entails analysis of at least two liabilities—the liability that exists in the marketplace and has an observable interest rate and the liability being measured. The appropriate rate of interest for the cash flows being measured shall be inferred from the observable rate of interest of some other liability, and to draw that inference the characteristics of the cash flows shall be similar to those of the liability being measured.
Rarely, if ever, would there be an observable rate of interest for a liability that has cash flows similar to an asset retirement obligation being measured. In addition, an asset retirement obligation usually will have uncertainties in both timing and amount. In that circumstance, employing a discount rate adjustment technique, where uncertainty is incorporated into the rate, will be difficult, if not impossible. See paragraphs 410-20-55-13 through 55-17 and Example 2 (paragraph 410-20-55-35). For further information on present value techniques, see the guidance beginning in paragraph 820-10-55-4. FASB Codification, Liabilities, 410-20-30) Last point for the FASB website, is that it offered other sources search area which contained headings for: accounting standards updates, proposed accounting standards updates, other exposure documents, and pre-codification standards (FASB Pronouncements, and EITF Abstracts) (FASB, Other Sources). When I clicked on the pre-codification standards to find what FASB Pronouncements were listed for my topic, 410, I found the entire is of FASB Pronouncements.
I couldn’t search for the applicable standard through a look-up; I had to scroll through the list to find a standard that pertained to my search. What I found was: Statement No. 157 (Superseded) Fair Value Measurements (Issue Date 09/06) [As Amended] [As Issued] [Summary] [Status](FASB, Other Sources, Pre Codifications Standards) Table 1 FASB Accounting Standards Codification Table of Contents Collapse | Expand 410 Asset Retirement and Environmental Obligations 10 Overall 00 Status General 05 Overview and Background General 20 Glossary 20 Asset Retirement Obligations 00 Status
General 05 Overview and Background General 15 Scope and Scope Exceptions General > Entities > Transactions 20 Glossary 25 Recognition General > Background for Recognition > Fair Value Is Reasonably Estimated > Obligations with Uncertainty in Timing or Method of Settlement > Uncertainty in Performance Obligations > Acquired Asset Retirement Obligations 30 Initial Measurement General > Determination of a Reasonable Estimate of Fair Value 35 Subsequent Measurement General > Allocation of Asset Retirement Cost > Change in Estimate gt; Effects of Funding and Assurance Provisions 40 Derecognition General > Settlement of an Asset Retirement Obligation 45 Other Presentation Matters General > Classification of Accretion Expense > Statement of Cash Flows 50 Disclosure General 55 Implementation Guidance and Illustrations General > Implementation Guidance >> Determination of Whether a Legal Obligation Exists >> Expectation of Nonenforcement >> Acquisition, Construction, or Development of a Long-Lived Asset >> Normal Operations >> Components of a Larger System gt;> Obligations with Uncertainty About Government Enforcement >> Expected Present Value Technique >> Credit-Adjusted Risk-Free Rate >> Calculation of Accretion Expense >> Changes in Assumptions and Legal Requirements >> Interim Property Retirements >> Historical Waste on Electrical and Electronic Equipment Associated with EU Directive 2002/96/EC > Illustrations >> Example 1: Subsequent Measurement of a Liability Obtained from a Market Price >> Example 2: Recognition and Measurement gt;>> Case A: Initial Measurement Using a Present Value Technique, Subsequent Measurement with No Change in Expected Cash Flows >>> Case B: Initial Measurement Using a Present Value Technique, Subsequent Measurement with Changes in Expected Cash Flows >>> Case C: Recognition and Measurement Over More than One Reporting Period >>> Case D: Conditional with Low Likelihood of Enforcement >> Example 3: Recognition of a Conditional Asset Retirement Obligation >>> Case A: Recognition when Fair Value Can Be Reasonably Estimated >>> Case B: Recognition when Fair Value Can Be Reasonably Estimated >>> Case C: Recognition when Entity Has Insufficient Information to Reasonably Estimate Present Value >>> Case D: Recognition when Entity Initially Has Insufficient Information, but Later Has Sufficient Information to Reasonably Estimate Present Value >> Example 4: Historical Waste on Electrical and Electronic Equipment Associated with EU Directive 2002/96/EC 60 Relationships General > Interest 75 XBRL Elements Note: The table of contents is from the FASB Accounting Standards Codification No. 410, Liabilities Part B RIA Checkpoint has different databases to research. The search options available exist on the left side of the research tab in a drop down box: Federal, State & Local, Estate Planning, Pension & Benefits, International, Auditing Audit and Corp Finance, Payroll, and All Practices. For my purposes, I chose Auditing Audit and Corp Finance for my area practice search.
There are three search criteria areas, one for keyword search, a second area with menu choices for the types of editorials (by industry), a menu for standards and regulations (i. e. FASB Codification and Sarbanes Oxley),and third area is the search button. The key word I used “410”, exactly entered with quotes, chose the GAAP Practice Manual, SOX Reporter, and Internal Auditing Manual WG & L. The results yielded 12 for GAAP, 16 under the SOX reporter, and 1 in the Internal Auditor databases. The Checkpoint database listed the applicable databases that I had selected that produced results. I was able to click on each database to bring up those articles. The GAAP article I chose was entitled, 10A: Asset Retirement Obligations.
This article did pertain to authoritative pronouncements for FASB 410-20. The information I found concerning asset retirement fair value measurement was found under heading 10A. 3. A legal obligation is one that is required to be settled as a result of a law, statute, or contract, or by legal construction of a contract under the doctrine of promissory estoppel (i. e. , a promise without consideration but that nonetheless may be enforced because the promisor should have reasonably expected the promisee to rely on the promise). Finally, SAS #56 requires that any more auditing procedures done due to significant differences from initial analytical procedures be documented. (GAAP Practice Manual, 10A. 3)
The article I researched through the SOX reporter was found using the same route as with the GAAP article. This database didn’t have specific articles about the Codification 410. All of the articles in this database that contained the keyword “410” were titled on evaluating consistency of financial statements. I chose the most recent article, Release No. 2008-001: [Auditing Standard No. 6] Evaluating Consistency of Financial Statements and Conforming Amendments PCAOB Rulemaking Docket [Matter No. 023], which was written by the PCAOB. Checkpoint has keyword lookup within the articles, I could click on the ‘keyword lookup arrow’, and it brought me directly to my keyword. The keyword brought up the auditing standard, “AU. ec410, Adherence to Generally Accepted Accounting Principles” (SOX Reporter, Section D). In addition to proposing an auditing standard on evaluating consistency of financial statements, the Board also proposed amendments to other interim auditing standards and related interpretations. The following sections describe key aspects and elements of the amendments to the standards and interpretations, comments received, and changes incorporated in the final amendments (SOX Reporter, Section D). The Internal Auditing Manual resulted in one article, Controlling Audit Projects. This was disappointing, what “410” resulted in this article, was relevant to the internal audit process: 410-engagement planning.
I entered a different key word so that I could bring additional information ‘asset retirement’ and ‘environmental obligations’, separately. Environmental obligations resulted in zero results; however, I was able to gather information for asset retirement under the GAAP Manual and SOX Reporter. The SOX Reporter article had one result titled ANN ¶1045. 15 Inspections of registered public accounting firms—Final reports—Public availability. The article contained public reports of auditing companies whom had deficiencies with their audits. Two companies were deficient on asset retirement obligation within their audits. Causey Demgen & Moore Inc. (did not perform and document audit procedures to evaluate the need to record an asset retirement obligation. Deloitte & Touche LLP (The audit documentation did not evidence sufficient testing of the purchase accounting, including testing of fair values allocated to certain assets and liabilities, useful lives assigned to the acquired assets, and the amount of the asset retirement obligation. ) Part C In summary, the FASB Codification and RIA Checkpoint databases have different methods for searching, as well as, the amount of information available. FASB was very simple and straightforward. It had very specific information and the ease of use was very good. It provided very detailed information the codifications. I thought the breakdown by financial category and asset. If I didn’t know which financial category my issue was in (i. e. liabilities, I could do a key word search that would provide appropriate information. The downside to the FASB database is that it was very limited in the types of information I was able to obtain.
The database was strictly for codifications and didn’t have other articles relating to current industry standards issues. RIA Checkpoint database contained numerous databases and broke out the search by different practices. I could have isolated my search to either just federal or state and local issues. I could narrow my searches within the editorial and/or the standards and regulations column. When the results were compiled, RIA Checkpoint just listed those articles that were restricted by the keyword. I was able to return back to my initial results and choose a different database to search through articles. Overall, I found both databases to very useful and relevant to my codification topic. ?