06/04/2007 Council Packet (2) - Laserfiche WebLink

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Accounting and Financial Reporting for Pollution Remediation Obligations (GASB Statements No. 49) (Continued) Expenditure recognition or asset capitalization occurs when one of the following five obligating events takes place: - The government is compelled to take pollution remediation action because of an imminent endangerment. The government violates a pollution prevention related permit or license. - The government is named, or evidence indicates that it will be named, by a regulator as a responsible party or potentially responsible party for remediation, or as a government responsible for sharing costs. - The government is named, or evidence indicates that it will be named, in a lawsuit to compel participation in pollution remediation. - The government commences or legally obligates itself to commence pollution remediation. Costs of remediation should be accrued for all components (legal fees, site investigation costs, etc.) of the obligation that are reasonably estimable. The standard outlines a method for recording a liability based on estimated future remediation payments (expected cash flow technique = sum of all probability weighted amounts in a range of possible estimated amounts). The liability should be reduced by any estimated insurance or other recoveries that are not yet realized or realizable. An asset should be reported separately for any known insurance or other recoveries that are already realized or realizable. If liability recognition is necessary, it is required to be recorded at current value versus estimated future inflating factors for such criteria as unknown technologies, laws or regulations. This liability amount is carried forward unchanged until one of the five benchmarks occurs, there is a change in the remediation plan, or there is a change in operating conditions. Additional footnote disclosures accompanying recognition of a liability include explaining the nature and source of the remediation obligation as well as the methods and assumptions used to estimate the liability. (15)