Policy and Reporting Issues & Conclusion – GASB 49's Requirements, Part 4

The pollution remediation costs your government must report in its annual financial statements may dramatically increase as a result of the Governmental Accounting Standards Board Statement No. 49, “Accounting and Financial Reporting for Pollution Remediation Obligations” (GASB 49). This four-part series will cover the requirements, potential liabilities and suggested operations that will help you implement these changes.

Read Part 1, Part 2 & Part 3 if you missed them.

Below, in part 4, we'll go over policy and reporting issues, and offer a conclusion on how your government can best deal with the rising pollution remediation costs.

Policy and Reporting Issues

The comprehensive list of contaminated sites and basic information on each site that is collected by the work team can assist management in making such policy decisions as:

• How aggressively to pursue claims and suits against PRPs and insurers.
• How to estimate and minimize future costs related to environmental remediation and related legal costs.
• The level of insurance needed to cover contaminated property.
• Wording in sales or lease agreements related to contaminated property.

GASB 49 requires these note disclosures in your government’s annual financial report:

• Nature and source of pollution remediation obligations.
• Amount of estimated liability.
• Methods and assumptions used for estimating the liability.
• Potential for changes in the estimates.
• Estimated recoveries that reduce the measurement of the liability.
• General description of the nature of pollution remediation activities for liabilities that are not reasonably estimable.

Detailed disclosures about pollution liabilities and related expected settlements in the annual financial statements could compromise the government’s position in potential or existing litigation. Litigants also may be able to identify the probability assigned to recovery of costs for a specific site through information that can be subpoenaed or obtained through public records or sunshine laws.
Legal staff should therefore be consulted relating to the wording of disclosures and whether any information collected by the work team should be subject to attorney-client privilege. Senior management should consider the level of detail shared at public meetings.​

Conclusion

Simply stated, pollution remediation costs will likely be rising owing to implementation of GASB 49. Your government should immediately assemble a work team to analyze the impact of GASB 49 on each site. The work team should:
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• Identify polluted sites.
• Determine whether obligating events have occurred.
• If so, determine whether the range of components of the liability are estimable.
• For those components that are estimable, estimate the current value of outlays, net of estimated settlements and any portion that can be capitalized.
• Record the liability in the financial statements.
• Disclose the required information in the notes to the financial statements.
• Remeasure the liability as new information becomes available.

This series has highlighted many areas where your government may need to implement new controls. 
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For a personalized approach to identifying areas of weakness and implementing controls in your government, please contact me directly via email: kharper@kevinharpercpa.com


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