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Far From Closure: No Consensus Yet on Accounting Proposal for Decommissioning
admission of enforceable obligations not legally binding.
In this case, disclosure overload lies at cross-purposes with the efforts of the accounting profession to find ways to get stockholders to read annual reports. The overload appears largely the product of the board's insistence on recording closure or removal costs at present value. This situation could be averted by maintaining existing approaches for these costs that are understood, such as use of depreciation by utilities and SFAS 19 by petroleum companies.
With the exception of the others group, the comments gave nearly universal support for a delay of one year or more. Some suggested a delay until field tests are conducted or until completion of the board's current project examining accounting measurements based on present value of future cash flows. These respondents said any effort to revise depreciation practices should be part of a complete review of depreciation issues.
In my view, the board should remain sensitive to the fact that the respondents with the best understanding of implementation requirements were the most vocal concerning the need to delay implementation. However, even with these suggested delays, implementation would occur well before the modified or new software could be prepared to carry out the changes.
As of mid-summer, however, the board had not yet issued a revised exposure draft or final standard, or even released a time line for future actions. Thus, any final adoption of the FASB proposal must necessarily be delayed at least by one year beyond the original plan, which had targeted fiscal years beginning after Dec. 15, 1996.
Other topics drew more responses, beyond the eight issues on which the FASB had asked for direct comment, showing the following concerns:
• Constructive Obligations. Definition thought to be too broad or too vague, affecting the reliability of estimates and financial statements (accountants, in particular).
• Overall Consistency. Conflicts seen with EITF 93-5 on environmental liabilities, %n4%n SFAS 87 and 106, Rule 4-10 of SEC Regulation S-X, and the definition of reliability %n5%n contained in Statement of Concepts 2.
s Accretion (liability treatment). That recording accretion as interest under liability treatment would damage validity of financial ratios; that accretion should be recorded instead as depreciation or operating expense (industrials, mostly). Or that FASB should segregate depreciation of the corresponding asset amount from normal depreciation under liability treatment.
• Income Volatility. Under liability treatment, with constant revisions of cost estimates as plans change for future use of assets. (Utilities feared that different approaches for nuclear decommissioning (em annuity calculations for funding, present-value calculations for financial statements (em would create short-term volatility.)
• Unforeseen Circumstances. Under liability treatment, these might be confused with a contingency reserve, which cannot be recorded as a liability under SFAS 5 (accountants).
• Matching Principle. That the FASB draft would disrupt the matching of revenues and asset consumption or product production that stems from the current practice of using depreciation and SFAS 19 for the obligations. (Especially the utilities and industrials, regarding obligations already recorded for mines and oil and gas fields.) %n6%n
The FASB had addressed the definition of "constructive