Government Insights GASB Statement
No. 83
GASB Statement No. 83 provides guidance for recognizing certain asset retirements STATE AND LOCAL GOVERNMENTS face asset retirement obligations (AROs) when certain tangible capital assets, such as power generation facilities, sewage treatment plants or medical equipment items are retired. Statement No. 83 – Certain Asset Retirement Obligations – issued in November 2016 by the Governmental Accounting Standards Board (GASB) provides accounting and financial reporting guidance for AROs that was not addressed in previous GASB standards.
Effective Date STATEMENT NO. 83 takes effect for reporting periods beginning after June 15, 2018. The GASB encourages earlier application.
Anticipated Improvements STATEMENT NO. 83 establishes uniform criteria for recognizing and measuring certain AROs, thereby enhancing financial statement comparability. Disclosure requirements are designed to further enhance financial statement usefulness.
Issues Addressed by Statement No. 83 STATEMENT NO. 83 provides the following guidance: ARO Recognition ARO recognition occurs when the liability is incurred and is reasonably estimable. Incurrence is marked by an external obligating event and an internal obligating event. The external obligating event may be a federal, state or local law or regulation, a contract or binding judgement. The internal obligating event may be: • A contamination-related ARO not in the scope of GASB Statement No. 49 • An incurrence based on the remaining usable capacity of the tangible capital asset. • The expected lifespan of the tangible capital asset, based on when it was put into operation • The permanent abandonment of a tangible capital asset before being placed into operation Initial ARO Measurement Initial ARO is based on: • Relevant legal requirements, including laws, regulations, contracts and judgements • Best estimate of current value of expected outlays, based on all available evidence
Government Insights: GASB Statement No. 83 Initial ARO Measurement – Minority Owner Exception If the government has less than a 50 percent ownership interest in the tangible capital asset, the following factors must be considered: • • • •
Accounting guidance used by the majority owner for measuring ARO Operational responsibility if no one party has majority ownership Initial measurement of a deferred outflow of resources Corresponding liability used as the initial measurement for a deferred outflow of resources associated with an ARO
Subsequent ARO Measurements and Recognition • Subsequent measurements and recognition should generally be conducted annually. • In minority ownership situations, ARO measurement should be no more than a year and one day prior to the government’s financial reporting date. • For a deferred outflow of resources, the estimated useful life of the tangible capital asset is generally used for recognizing the outflow. Financial Statement Notes Financial statement notes should include: • A general description of the AROs and legal sources of obligations • Methods and assumptions used to determine liabilities • How legally-required funding and assurance provisions associated with the AROs are being met • The amount of assets restricted for payment of liabilities • Any ARO that has been incurred but not yet recognized • Details when the government is a minority owner
Summary STATEMENT NO. 83 was issued to enhance uniformity and consistency in recognizing and measuring AROs, thereby improving the comparability and usefulness of government financial statements.
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