410 Asset Retirement and Environmental Obligations
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)
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.e. 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...