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Accounting for Impairment, Disposal or Retirement of
Assets
Developments
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 FASB
adopted FIN 47 2005
- Intended to spur adoption of FASB 143
- Tells issuers not to wait on recognizing
liabilities
because of difficulty of estimation
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FASB
144 Impairment or Disposal of Long-Lived Assets
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FASB
Text 2001
 Must recognize
impairment when the financial statement
carrying amount of a long-lived asset or asset group exceeds its
fair value and is not recoverable
- Carrying amount is not recoverable if it is
greater than the sum of the undiscounted cash flows expected from the assets
use and eventual disposal
- Impairment loss is the excess of carrying amount over assets
fair value
- FASB 144 can apply to
long-lived assets, such as factories or storage facilities, that
require expensive cleanup when decommissioned
- Also covers financial
institution customer relationship intangibles (see FASB 147)
FASB Staff Positions
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FSP FAS 144-1 2003
Cost Basis for Foreclosed Assets
Measurement of Cumulative Losses
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FASB 143 Asset Retirement Obligations
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FASB
Text 2001
Must recognize a liability for a retirement
obligation when incurred even if that is far in advance of the
assets planned retirement
- Must capitalize asset
retirement costs as an increase in carrying amount of the
related long-term asset
- Must depreciate these costs, as well as related accreted
interest, lowering GAAP net income
- Utilities:
FERC Guidance
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FIN 47
Conditional Asset Retirement Obligations
SEC_CODE_REF_0090001192884
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Text 2005 Clarifies the term
conditional
asset-retirement obligation
- As used in FASB 143, a legal
obligation to perform an asset retirement activity in which the timing and/or
method of settlement are conditional on a future event that may or may not be
within the control of the entity
When the obligation is
unconditional even though uncertainty exists about the timing and/or method of
settlement, FIN 47 clarifies that an entity is required to recognize a liability
for the fair value of the obligation when incurred if the liabilitys
fair value can be reasonably estimated
- Also clarifies when an entity
would have sufficient information to reasonably estimate the fair value of an
asset retirement obligation
- Thus, can't avoid recognition based on timing
issues
- Has particular effect on recognition of
environmental liabilities
Effective at end of fiscal years ending after
12.15.05 Precedent
adoptions
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Shareholder Litigation
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In
re Exxon Mobil
- Alleges that Exxon failed to comply with FASB 121
- Unlike Mobil and rest of industry
- Brought on behalf of Mobil shareholders
who were misled into approving Exxon-Mobil merger
at an unfavorable stock exchange ratio
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Amended complaint - D NJ 10.04.04
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Defendant's brief 12.03.04
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Plaintiffs' brief 2.01.05
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Disclosure Requirements
Related Topics
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