Understand the accounting requirements in ASC 410

Understanding environmental obligations and asset retirement obligations

Environmental obligations can arise from (1) the improper operation, retirement, or closing of a facility and (2) the current or former ownership of a facility at or near a contaminated site. Entities that have incurred a legal obligation to remove or remediate pollution or contaminants from environmental media such as soil, sediment, groundwater, and surface water are generally required to recognize an environmental remediation liability in their financial statements when certain conditions are met.

An asset retirement obligation (ARO) is a legal or contractual obligation associated with the retirement of a tangible long-lived asset that results from the acquisition, construction, development, and normal operation of that long-lived asset.

The FASB has established specific guidance on accounting for environmental obligations and AROs in ASC 410.
 

EPA’s final rule on legacy CCR surface impoundments and CCR management units

On May 8, 2024, the EPA’s final rule on legacy coal combustion residuals (CCR) surface impoundments and CCR management units (CCRMUs) was published in the Federal Register. The three main elements of the final rule are as follows:

• Legacy CCR surface impoundments — The final rule introduces a definition for legacy CCR surface impoundments, which are inactive surface impoundments at inactive power plants. These impoundments must adhere to the same regulations as inactive CCR impoundments at active power plants, barring location restrictions and liner design criteria, with customized compliance deadlines.
  
• CCRMUs — The final rule stipulates groundwater monitoring, corrective action, closure, and post-closure care requirements for CCRMUs, which are at active and inactive power plants with a legacy CCR surface impoundment. CCRMUs include CCR surface impoundments and landfills closed before October 19, 2015, and inactive CCR landfills.
  
• Facility evaluation reports (FERs) — The final rule mandates new reporting requirements. The owners and operators of legacy CCR surface impoundments must prepare FERs that identify and describe the CCRMUs. In a manner consistent with existing CCR rules, facilities must publish FERs on their CCR websites in two parts, within 15 months (part 1) and 27 months (part 2) of the final rule’s effective date.
  

Climate and sustainability matters

On March 6, 2024, the SEC issued a final rule that requires registrants to provide climate-related disclosures in their annual reports and registration statements. Specifically, registrants must disclose certain climate information in the notes to the financial statements and outside the financial statements. For example, in the footnotes to the financial statements, a registrant must disclose (1) financial statement impacts due to severe weather events and other natural conditions, including the aggregate expenditures incurred, losses recognized, and capitalized costs and charges, subject to certain thresholds; (2) a rollforward of carbon offsets or renewable energy certificates (RECs) if the registrant’s use of carbon offsets and RECs is a material component of its plan to achieve its disclosed climate-related targets or goals; and (3) whether and, if so, how severe weather events and other natural conditions and disclosed climate-related targets or transition plans materially affected estimates and assumptions reflected in the financial statements. Large accelerated filers and accelerated filers must provide disclosures outside the financial statements about their material scope 1 and scope 2 greenhouse gas (GHG) emissions, subject to assurance requirements that will be phased in. In addition, all registrants, regardless of filer status, are required to disclose outside the financial statements (1) governance and oversight related to material climate-related risks; (2) the material impact of climate-related risks on the company’s strategy, business model, and outlook, including material expenditures and impacts related to targets, goals, and related activities or mitigation; (3) the risk management processes for material climate-related risks; and (4) material climate targets and goals.

On April 4, 2024, the SEC voluntarily stayed the effective date of the final rule pending judicial review of petitions challenging it, which have been consolidated for review by the US Court of Appeals for the Eighth Circuit. For more information about the final rule, see Deloitte’s March 6, 2024 (updated April 8, 2024), and March 15, 2024 (updated April 8, 2024), Heads Up newsletters.

Concurrently with the SEC’s rulemaking activities related to climate disclosures, its Division of Corporation Finance (the “Division”) has continued to issue comment letters to registrants in various industries regarding climate-change disclosures. The Division has publicly released such comment letters and registrants’ responses to them.

Continue your environmental obligations and asset retirement obligations learning

Deloitte’s Roadmap Environmental obligations and asset retirement obligations comprehensively discusses the recognition, measurement, presentation, and disclosure guidance in ASC 410-20 and ASC 410-30.