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Essay Subject: Discussion of the elements of FAS paticularly Assets Liability etc as they relate to ...... More...

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Paper Abstract: Discussion of the elements of FAS 143 paticularly Assets, Liability etc as they relate to Statement of Accounting Concepts. Comparison to International Accounting standards. Includes practical examples of companies already implementing FAS 143. Paper Introduction: In September of The Financial Accounting Standards Board theFASB issued Statement No Accounting for Asset RetirementObligations Initiated in the project focused on accounting for thecosts of decommissioning nuclear power plants Later the FASB expanded theproject\'s scope to include similar closure costs in other industries thatare incurred at any time during the life of an asset SFAS No Accounting for Asset Retirement Obligations was effective for yearsbeginning after June This Statement amended FASB Statement No Financial Accounting and Reporting by Oil and Gas Text of the Paper: The entire text of the paper is shown below. However, the text is somewhat scrambled. We want to give you as much information as we possibly can about our papers and essays, but we cannot give them away for free. In the text below you will find that while disordered, many of the phrases are essentially intact. From this text you will be able to get a solid sense of the writing style, the concepts addressed, and the sources used in the research paper. The capitalized cost ofthe asset retirement obligation will subsequently depreciate over the lifeof the asset. As such, if a company does nothave a legal obligation to incur costs to retire an asset, the staffbelieves it is outside of the scope of SFAS 143. 2 March 2 3.SUMMARY OF IFRIC D2. 23 Oct. Legal obligations result from law,statute, ordinance, or contract, or arise from promissory estoppel. SFAS No. . 2 2. Thus, SFAS 143applies to legal and other obligations for which the entity has little orno ability to avoid future costs in performing retirement activities. Later, the FASB expanded theproject's scope to include similar closure costs in other industries thatare incurred at any time during the life of an asset. On the asset side, the estimated cost of retirement must becapitalized to the related asset account at the time the liability isrecognized, and future depreciation amounts must be revised accordingly.This means that for utilities with nuclear facilities, plant costs increaseby the amount of estimated nuclear decommissioning charges. Additionally, retirement obligations will berecognized when they are incurred and presented as liabilities. This Statement amended FASB Statement No.19, Financial Accounting and Reporting by Oil and Gas Producing Companies. This new rule requires businesses to record the fair value of aliability for an asset retirement obligation in the period in which it isincurred. The Financial Accounting Standards Board's adoption of SFAS 143 willlikely have the following effects on financial reporting: . For some entities, obligations will be recognized earlier, and they will be displayed as liabilities rather than as contra-assets. 2 4. Thus, moreinformation about future cash outflow, leverage, and liquidity will beavailable to stakeholders interested in a company's financial statements.In addition, an initial measurement at fair value will provide relevantinformation about the liability. In addition, beginning in 2 3, the company willrecord accretion expense for its Asset Retirement Obligation liabilitiesand additional depreciation expense on the associated assets. Insuch situations, upon adoption of SFAS 143, any previously recordedaccruals should be reversed. No costs should berecorded until a legal obligation arises or costs are actually incurred. Finally, the statement requires that thecumulative-effect related to the adoption of the pronouncement be flowedthrough the income statement. Disclosurerequirements contained in this Statement will provide more informationabout asset retirement obligations. In addition, obligationsthat meet the definition of a liability were not being recognized whenthose liabilities were incurred, or the recognized liability was notconsistently measured or presented. In September of 2 1, The Financial Accounting Standards Board (theFASB) issued Statement No. Kerr-McGee Corporation was required to adopt FAS 143 on January 1,2 3. The amount of expense (accretion expense plus depreciation expense) will be higher in the later years of an asset's life than in earlier years. Additionally, the asset retirement liability will be increased overtime to account for the time value of money through charges to operatingexpense until the liability is ultimately extinguished when the actualremoval work is performed. Deloitte Touche Tohmatsu. Upon settlement of the liability, an entity either settles theobligation for its recorded amount or incurs a gain or loss uponsettlement. 143, Accounting for Asset RetirementObligations. Thereconciliation must include disclosure of additional retirement liabilitiesarising in the current period, settlements of retirement liabilities,accretion, and the effects of changes in cash flow estimates. The IASB's currentagenda is focused to achieve those goals and is divided into three areasto: (a) provide international leadership and promote convergence, (b)provide for easier application of International Financial ReportingStandards (IFRS), and (c) improve existing IFRS. FAS 143 applies to legal obligations associated with theretirement of a tangible long-lived asset. 7 May 2 1. Financial Accounting Standards Board. Assets also will increase because assets acquired with an existing retirement obligation will be displayed on a gross rather than on a net basis. For example, in thewaste management industry the costs include: the final capping of the site,site inspections, groundwater monitoring, methane gas control, andmaintenance costs. In October of 2 3, UniSource Energy Corporation reported consolidatedyear-to-date earnings through Sep. The company recorded an after-tax charge to earnings of approximately $35 million on January 1, 2 3, torecognize the cumulative effect of retroactively applying the newaccounting principle. 2 3. SFAS 143 requires immediate recognition of a liability for such costs,measured at fair value (the amount at which the liability could be settledcurrently). The IFRICagreed that it was important that any Interpretation it developed shoulddeal consistently with changes in estimated cash flows and changes in thediscount rate. 2 3: 12 .Mazza, Cheri. 3 ,2 3, were $17. 2 March 2 3 . The recognized cost of assets will increase because asset retirement costs will be added to the carrying amount of the long-lived asset. Therefore, financial statements of different entities willbe more readily comparable. This approach views the asset, from the time the liability fordecommissioning is initially incurred until the end of the asset's usefullife, as the unit of account to which decommissioning costs relate. . Deloitte Touche Tohmatsu. When the liability is initially recorded, the entity capitalizes acost by increasing the carrying amount of the related long-lived asset.Over time, the liability is accreted to its present value each period, andthe capitalized cost is depreciated over the useful life of the relatedasset. Initiated in 1994, the project focused on accounting for thecosts of decommissioning nuclear power plants. 2 March 2 3 .Henry, David. Examples of obligations covered by SFAS 143include obligations arising from: decommissioning nuclear energy generationfacilities; dismantling and removing off-shore oil and gas productionfacilities; specified closure, reclamation, and removal costs associatedwith mining and smelting activities; and closure and post-closure costs oflandfills, hazardous waste disposal facilities, and fuel storage facilities The retirement liability arises from the obligation to remove ormitigate the impact of the potentially adverse effects of the operation ofcertain long-lived assets or the very asset itself. 21 March 2 3 < http://www.reportgallery.com/work/kerr2 2/39.htm>.SUMMARY OF IAS 37. Deloitte Touche Tohmatsu writes that mirroring FAS 143 is IAS #37, aprovision that must be recognized when an asset is acquired if the acquireris obligated to incur costs for decommissioning, restoration, and similarfuture activities. "SFAS 143 on asset retirement obligations." CPA Journal 73.1 (2 3): 54.New Accounting Standards. Forobligations arising from promissory estoppel, a party cannot use theabsence of consideration as a defense; that is, a valid contract may existwithout the exchange of consideration if one party relied on a promise madeby another and was harmed because of that reliance (54). The goals of the International Accounting Standards Board are todevelop a single set of high quality global accounting standards and tobring about convergence of all accounting standards. Securities and Exchange Commission looks toestablish standards for financial accounting and reporting for publiclytraded companies in the U.S. 2 4. Excluding the impact of FAS143, UniSource Energy's consolidated year-to-date earnings through Sep. In certain cases, the amount of a recognized liability may be lower than that recognized in current practice because a fair value measurement entails discounting. Deloitte Touche Tohmatsu also notes that the main changes dealt within the Interpretation are those that arise from (i) the revision ofestimated outflows of resources embodying economic benefits and (ii)revisions to the current market-assessed discount rate. The company recorded a $67.5 millionafter-tax gain because of adopting FAS 143. Under the proposedInterpretation, these two changes are accounted for in the same manner asthe initial estimated cost. The costs are included as part of the cost of the asset.The proposed interpretation deals with accounting for subsequent changes inthe estimated cash flows relating to the provision. 21March 2 3 .Chewning, Eugene. The Financial Accounting Standards Board decided to address theaccounting and reporting for asset retirement obligations because:Users of financial statements indicated that the diverse accountingpractices that have developed for obligations associated with theretirement of tangible long-lived assets made it difficult to compare thefinancial position and results of operations of companies that have similarobligations but account for them differently. In the investor-owned utility industry, costs includethe actual removal and disposal of the activated (hot) equipment andfacilities of nuclear reactors. IAS37, unlike SFAS 143, requires a decommissioning obligation to reflect theeffect of a change in the current market-assessed discount rate. The newaccounting principle was not expected to have a significant effect on 2 3income from continuing operations according to the company. Acontractual obligation normally requires an exchange of consideration. 3 , 2 3, were $84.5 million, or $2.5 per share, compared to $28.4 million, or $ .84 per share, during the sameperiod last year. Under the requirements of FAS 143, an entity must estimate andrecord the present value of future legal obligations related to the finalclosure or decommissioning of its plants and facilities. David Henry writes that the FinancialAccounting Standards Board (FASB) is a seven-member quasi-governmentalboard to whom the U.S. Because the asset retirement cost iscapitalized as part of the asset's carrying amount and subsequentlyallocated to expense over the asset's useful life, information about thegross investment in long-lived assets will be provided. The FASB is independent of all otherbusiness and professional organizations. Eugene Chewningwrites in CPA Journal that entities will be required to record the assetretirement obligation as a liability with a corresponding increase to thecapitalized cost of the related plant or facility. Kerr-McGee Corporation 2 2 Annual Report. The removal process includes engineeringschedules, actual dismantlement of facilities, and current and futuresecurity. As a result, it reported it its 2 2 annual report that the companywould accrue an abandonment liability associated with its oil and gas wellsand platforms when those assets are placed in service, rather than its pastpractice of accruing the expected abandonment costs on a unit-of-productionbasis over the productive life of the associated oil and gas field.Additionally, the company would accrue an abandonment liability associatedits decision to decommission three plants. "FASB: The Devil is the Details." Business Week 13 Oct. Tucson Electric Power. Total liabilities generally will increase because more retirement obligations will be recognized. Cheri Mazza notes in CPA Journal that thescope of SFAS 143 does include legal obligations resulting from "theacquisition, construction, or development and (or) the normal operation ofa long-lived asset" (paragraph 2). Differences between previously recorded expenses andexpenses that would have been recorded had SFAS 143 been followed in prioryears require a cumulative-effect adjustment. million, or $ .5 per share. These results reflect the adoption of FinancialAccounting Standard 143 (FAS 143). SFAS 143 requires a discussion of the nature of the costs, the fairvalue of the assets set aside to settle the liability, and a reconciliationof the beginning and ending balance of the asset retirement liability. The mining industry faces costs not only of reclamation of theactual mining site but also of removal of roads, preparation plants, andother facilities. Hence, amounts relating to the depreciation ofthe asset that would have been recognized to date are reflected in currentperiod income or expense and amounts relating to future depreciation arecapitalized. This may or maynot result in an increase in depreciation expense, since thesedecommissioning charges are currently included in depreciation rates butnot capitalized. "Accounting for asset retirement obligations." CPA Journal 72.5 (2 2): 56.FASB Issues Standard on Accounting for Asset Retirement Obligations. 143,Accounting for Asset Retirement Obligations, was effective for yearsbeginning after June 15, 2 2. The body of rules and auditingstandards created by the FASB is called Generally Accepted AccountingPrinciples (12 ). Works CitedAbout Tucson Electric Power. Changes tothe Statement of Cash Flows improve the accuracy of financial reportingbecause all asset retirement obligations that fall within the scope of thisStatement and their related asset retirement cost will be accounted forconsistently. If this paper is not what you are looking for, you can search again: Search for: or Click here to request an essay written just for you.

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