Pollution Remediation Costs on the Rise: GASB 49’s Requirements – Part 1

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.

In part 1 below, we will discuss the overall controls and GASB 49 requirements.

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Pollution liabilities will likely be larger under GASB 49 than under current accounting standards (Statement of Financial Accounting Standards No. 5, “Accounting for Contingencies” [FAS 5]) because:

• The pollution remediation liability for each site will frequently be recorded earlier. FAS 5 does not require recognition until a liability becomes probable and measurable, whereas GASB 49 will require recognition at the time of an obligating event.
• The recorded amount of the pollution remediation liability for each site will frequently be larger. FAS 5 requires the liability to be reported at the low end of a range of estimated pollution remediation outlays when no amount within a range is a better estimate than any other amount. GASB 49 requires use of the expected cashflow technique, which is the probability-weighted average of projected future cash outlays.
• Remediation costs previously capitalized may be required to be expensed under GASB 49, which allows capitalization under limited circumstances.​

GASB 49 Requirements

GASB 49 specifies accounting and financial reporting for pollution remediation obligations, and it is effective for financial statements with periods beginning after December 15, 2007. Pollution remediation obligations are a government’s expected costs (direct outlays for payroll and benefits, equipment, facilities, materials, legal, and other professional services) to mitigate existing pollution by performing pollution remediation activities.

These remediation activities include pre-cleanup activities (site assessment, site investigation, corrective measures feasibility study, and design of remediation plan); cleanup activities (neutralization, containment, removal and disposal of pollutants, and site restoration); external government oversight and enforcement-related activities (work performed by an environmental regulatory agency dealing with the site and chargeable to the government); and operation and maintenance of the remedy (required post-remediation monitoring).

When any one of five obligating events occurs, a government is required to estimate the components of expected pollution remediation outlays. An obligating event has occurred if the government:

• Is compelled to take remediation action because pollution creates an imminent endangerment to public health or welfare or the environment, leaving it little or no discretion to avoid remediation action.
• Is in violation of a pollution prevention–related permit or license.
• Is named, or evidence indicates that it will be named, by a regulator as a responsible party or potentially responsible party (PRP) for remediation, or as a government responsible for sharing costs.
• Is named, or evidence indicates that it will be named, in a lawsuit to compel the government to participate in remediation.
• Commences, or legally obligates itself to commence, cleanup activities or monitoring or operation and maintenance of the remediation effort.

After an obligating event occurs, pollution remediation outlays should be accrued as a liability and expense—or capitalized in limited circumstances—when a range of expected outlays can be reasonably estimated. If a government cannot estimate the range of all components of the liability, it should recognize the liability as the range of each component (site investigation, feasibility study, removal of waste, installation of treatment equipment, required post-remediation monitoring, legal services) as it becomes reasonably estimable.

The liability must be recorded at the current value of the costs the government expects to incur in order to perform the remediation activities using the expected cashflow technique, which measures the liability as the sum of probability-weighted amounts in a range of possible estimated amounts (the estimated mean or average).

Governments should consider these recognition benchmarks (steps in the remediation process) in determining when components of pollution remediation liabilities are likely to become reasonably estimable. Recognition benchmarks include:

• Receipt from a regulatory agency of an administrative order compelling it to take a remediation action.
• Participation as a responsible party in a site assessment or investigation.
• Completion of a corrective measures feasibility study.
• Receipt from a regulatory agency of an authorization to proceed with remediation activity.
• As additional information and understanding become available throughout remediation design, implementation, and post-remediation monitoring.

​It is expected that the pollution remediation liability related to many sites may be relatively limited at initial recognition owing to lack of information to estimate the liability’s components and that the liability will increase over time as more information becomes available.

The next post, part 2 of this series will help you determine whether your government has potential liability.


For help implementing any of the controls discussed in this series, please reach out to me directly via email: [email protected]


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