Contingent Environmental Liabilities: Disclosures and Accounting (Portfolio 5136)

Portfolio 5136-2nd, Contingent Environmental Liabilities: Disclosures and Accounting, explains how to account for and disclose contingent environmental liabilities. Accounting for environmental liabilities is increasingly important in an era of heightened scrutiny, a rise in socially responsible investing, and demands by stakeholders for increased transparency.

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Description

Portfolio 5136-2nd, Contingent Environmental Liabilities: Disclosures and Accounting, explains how to account for and disclose contingent environmental liabilities. Accounting for environmental liabilities is increasingly important in an era of heightened scrutiny, a rise in socially responsible investing, and demands by stakeholders for increased transparency.

This Portfolio reviews applicable laws and regulations; analyzes the risks associated with the failure to account for and effectively disclose environmental liabilities (e.g., civil litigation, criminal charges, and damage to investor relations); and presents examples of corporate practices regarding accounting for and disclosing environmental liabilities. The Portfolio has been designed as a reference source for accountants tasked with accounting for and disclosing contingent environmental liabilities.

This Portfolio may be cited as BNA Tax and Accounting Portfolio 5136-2nd, Evers, Smith, Brown, and Drake, Contingent Environmental Liabilities: Disclosures and Accounting (Accounting Policy and Practice Series).

Note: Various FASB documents, copyrighted by the Financial Accounting Standards Board, 401 Merritt 7, P.O. Box 5116, Norwalk, CT 06858-5116, U.S.A., are reprinted with permission.

Authors

Pamela S. Evers, J.D.

Pamela S. Evers, LL.M., Environmental Law, Northwestern School of Law of Lewis & Clark University; J.D., Southern Methodist University; M.B.A., Emory University. Ms. Evers practices law in Texas and the District of Columbia. She also teaches in the Department of Accountancy and Business Law at the University of North Carolina Wilmington.

L. Murphy Smith, CPA, D.B.A.

L. Murphy Smith, D.B.A., Louisiana Tech University; M.B.A., University of Louisiana at Monroe; B.B.A., University of Louisiana at Monroe (summa cum laude). Dr. Smith has worked as an auditor with an international accounting firm. He frequently has consulted as an expert witness on accounting and auditing issues, and teaches Accounting at Texas A&M University.

Table of Contents

Detailed Analysis
I. Introduction and Scope
Introductory Material
A. Definition of a Contingent Environmental Liability
B. Examples of Contingent Environmental Liabilities
C. Reporting Contingent Environmental Liabilities
D. Scope of the Portfolio
II. Legal and Regulatory Framework for Accounting and Disclosing Contingent Environmental Liabilities
Introductory Material
A. Accounting and Financial Reporting
1. Federal Legislation
2. Financial Accounting Standards Board (FASB)
3. Internal Revenue Service (IRS)
a. Revenue Rulings 2004-17, 2004-18, and 2005-42
b. Revenue Ruling 95-74
c. IRS Notice 2001-17
d. Treas. Reg. §1.461-1(a)(2)(i)
4. Securities and Exchange Commission (SEC)
a. SEC Final Rule
b. Regulation S-K
c. SEC Staff Accounting Bulletin No. 92 (SAB 92)
d. SEC Staff Accounting Bulletin No. 99 (SAB 99)
5. Environmental Protection Agency (EPA)
a. An Introduction to Environmental Accounting as a Business Management Tool: Key Concepts and Terms
b. Valuing Potential Environmental Liabilities for Managerial Decision-Making: A Review of Available Techniques
c. Standards and Practices for All Appropriate Inquiries; Final Rule
6. ASTM International
a. ASTM Standard E 2137-01 (Standard Guide for Estimating Monetary Costs and Liabilities for Environmental Matters)
b. ASTM Standard E 2173-01 (Standard Guide for Disclosure of Environmental Liabilities)
B. Regulatory Framework and Guidance for Managing and Disclosing Environmental Impacts
1. In General
2. Federal Legislation and Agency Enforcement
3. State Legislation
4. Non-Governmental Guidance for Environmental Impacts
a. ISO14001:2004 Environmental Management Standard
b. International Association for Impact Assessment (IAIA) Publications
c. United Nations Publications
III. Economic Costs of Non-Compliance With Regulatory Scheme 53
Introductory Material
A. Criminal Litigation Report
B. Civil Litigation Report
IV. Methods of Accounting and Reporting Contingent Environmental Liabilities
A. Interrelated Concepts
B. Scope and Definition of Environmental Accounting
C. Environmental Accounting in Practice
D. The GRI Sustainability Reporting Guidelines
1. Background
2. Overview of the GRI Sustainability Reporting Guidelines
3. Reporting Principles
4. The Transparency Imperative
5. Principles of Report Content
6. Principles of Report Quality
7. Standard Disclosures in a GRI Report
V. Social Equity, Environmental Stewardship and Economic Vitality: The Triple Bottom Line
A. Framework
B. Evaluation
C. Examples
D. Summary
VI. Corporate Environmental Reporting
Introductory Material
A. Who Reports
B. Why Report
C. What to Report
D. Sustainability Context
E. Assurance Services
F. Assurance Providers
VII. Key Laws, Regulations, and Standards
A. Applicable Laws and Regulations Per ASC 410-30
1. Superfund
2. Resource Conservation and Recovery Act of 1976
3. Clean Air and Clean Water Acts
4. Emergency Planning and Community-Right-to-Know Act
5. Toxic Substances Control Act
B. United States GAAP Provisions
1. Remedial Actions for Asset Retirement Obligations
2. Remedial Actions at Owned or Previously Owned Sites or Sites Contaminated With Waste
a. Recognition-Remediation Liability
b. Recognition-Environmental Treatment Costs
c. Recognition-Property Acquisitions for Remediation Activities
d. Measurement-Remediation Liability
e. Measurement-Potential Recovery
f. Presentation and Disclosure in the Financial Statements
C. ISO 14000 Standards
D. The GAO Environmental Disclosure Report
E. Review of Accounting Research Literature
VIII. Examples of Environmental Disclosures
Introductory Material
A. Chevron Corp.
B. DuPont
C. Williams Company
D. BP PLC
E. Praxair Inc.
F. The Procter & Gamble Company
G. Bristol-Myers Squibb Company
H. Colgate-Palmolive Company
IX. Conclusion

Working Papers

Working Papers
TABLE OF WORKSHEETS
Worksheet 1 Glossary
Worksheet 2 Definitions of Liabilities From the FASB, IASB, and Certain of the IASB's National Standard Setter Partners
Worksheet 3 Framework of Federal Environmental Regulation
Worksheet 4 States Authorized to Administer the National Pollutant Discharge Elimination System of the Clean Water Act
Worksheet 5 States Authorized to Administer the National Pollutant Discharge Elimination System of the Clean Air Act
Worksheet 6 The ISO 14000 Model
Worksheet 7 Examples of Environmental Costs Incurred by Firms
Worksheet 8 Summary of GRI Performance Indicators*
Worksheet 9 The GRI Family of Documents
Worksheet 10 Comparison of Reporting Concepts: Global Reporting Initiative (GRI) With the Accounting From the Financial Accounting Standards Board of the United States (FASB) and the International Accounting Standards Board (IASB)
Worksheet 11 Novo Nordisk, 2003 TBL Statements
Worksheet 12 Wessex Water Environmental Cost Statement Showing Conversion of Environmental Impacts to Monetary Units
Worksheet 13 Corporate Responsibility Reports, by Type (adapted from KPMG International Survey of Corporate Responsibility Reporting 2005)
Worksheet 14 Percentage of Reporters, by Country (adapted from KPMG International Survey of Corporate Responsibility Reporting 2005)
Worksheet 15 Percentage of Reporters, by Industrial Sector (adapted from KPMG International Survey of Corporate Responsibility Reporting 2005)
Worksheet 16 Percentage of Corporations Identifying Drivers for Corporate Responsibility (adapted from KPMG International Survey of Corporate Responsibility Reporting 2005)
Worksheet 17 Examples of Environmental Disclosures by Selected Companies
Worksheet 18 List of Relevant Statutes
Worksheet 19 FASB Statement of Financial Accounting Standards No. 5, Accounting for Contingencies
Worksheet 20 FASB Interpretation No. 14 (as Amended): Reasonable Estimation of the Amount of a Loss
Worksheet 21 EITF Issue No. 90-8: Capitalization of Costs to Treat Environmental Contamination
Worksheet 22 AICPA SOP 94-6: Disclosure of Certain Significant Risks and Uncertainties
Worksheet 23 AICPA SOP 96-1: Environmental Remediation Liabilities
Worksheet 24 Staff Accounting Bulletin No. 92: Accounting and Disclosures Relating to Loss Contingencies