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(1) SFAS No. 5 states under "Accounting for Contingencies"
that a liability should be recognized in the financial statements if a
loss is probable and the amount is estimable. If the loss amount is not
estimable which is often the case, the contingency must be described in
the footnotes to the financial statements.
(2) ETIF Issue No. 90-8 required that all environmental
contamination costs be expensed as incurred unless costs extend the life
or increase capacity of the property, costs mitigate or prevent future
environmental contamination (that would otherwise occur), or costs are
incurred to prepare a property for sale.
(3) ETIF Issue No. 93-5 concluded that an environmental
liability must be evaluated independently from any potential claim for
recovery. This recovery claim can reduce the liability only if it is probable.
Securities Exchange Commission (SEC) standards state that it is appropriate
to net the asset and liability if the asset’s recovery is recognized as
probable. The asset and liability should be disclosed in the notes to the
financial statements. The SEC approves discounting of liabilities to their
present value. The Management Discussion and Analysis section of the annual
report requires "forward looking" disclosures. The SEC in Interpretation
No.14 states that registrants must take reasonable steps to identify the
minimum end of the loss range with a higher priority on studying sites
where a known problem exists. Registrants should assess the probability
of an environmental obligation and any insurance recovery independently.
Post-remediation monitoring approaches have been developed.
(4) AICPA Statement of Position (SOP) 96-1, “Environmental
Remediation Liabilities,” covers auditing and accounting topics dealing
with environmental issues. It details the responsibilities of corporations
involved in environmental cleanup, and responsibilities of corporations
to avoid environmental destruction. SOP 96-1 is a comprehensive environmental
issues guide.
Thousands of sites in the U.S. have been contaminated
and directed to be cleaned up by the Environmental Protection Agency. Laws
now require responsible parties to pay to clean up their past contamination,
which is often expensive. In response to consumer interests and regulatory
enforcement, some corporations have had to change their way of doing things.
Some firms have had to learn to recycle, limit waste output (air pollution,
water pollution, soil pollution), and most importantly, follow their hazardous
products from creation to final disposal. Consequently, for many organizations,
significant risks surround environmental issues. As penalties have increased
for poor environmental choices, many companies are paying closer attention
to regulations, often going beyond what is required.
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