Note X – Asset Retirement Obligations (ARO)
A template for this note is not available. See “Instructions to preparer:” for various disclosures that may be required.
Instructions to preparer:
Disclosure requirements (except for minority share):
a. A general description of the AROs and the associated tangible assets, as well as the source of the obligations (whether they are a result of federal, state , or local laws and regulations, contracts or court judgements)
b. The method and assumptions used to measure the liabilities
c. The estimated remaining useful life of the associated tangible capital assets
d. How any legally required funding and assurance provisions associated with AROs are being met; for example, surety bonds, insurance policies, letters of credit, guarantees by other entities, or trust used for funding and assurance
e. The amount of assets restricted for payments of liabilities, if not separately displayed in the financial statements.
If an ARO or portions thereof has been incurred by a government but is not yet recognized either because it is not reasonably estimable, or because the government does not currently plan to ever retire the asset, but instead to maintain it indefinitely (and is therefore not depreciating the asset), the government should disclose the general description of the ARO, associated assets and source of the obligation along with the reasons that a liability cannot be determined at this time.
If a government has a minority share in an ARO, it should disclose the following:
a. A general description of the ARO and associated tangible capital asset, including:
1. The total amount of the ARO shared by the nongovernmental majority owner or the nongovernmental minority owner that has operational responsibility, other minority owners, if any, and the reporting government
2. The reporting government’s minority share of the total amount of the ARO, stated as a percentage
3. The dollar amount of the reporting government’s minority share of the ARO
b. The date of the measurement of the ARO produced by the nongovernmental majority owner or the nongovernmental minority owner that has operational responsibility, if that date differs from the government’s reporting date
c. How any legally required funding and assurance provisions associated with the government’s minority share of an ARO are being met; for example, surety bonds, insurance policies, letters of credit, guarantees by other entities, or trusts used for funding and assurance
d. The amount of assets restricted for payment of the government’s minority share of the ARO, if not separately displayed in the financial statements.
Example notes:
The (city/county/district) has (number and size) underground fuel storage tanks. Under state law, the (city/county/district) is required to decommission the tank and the (city/county/district) plans to (retire/replace) the tanks and tank sites by (date). The (city/county/district) will incur estimated costs of $_____related to the project. These liabilities are reported on the Statement of Net Position. During (reported year) the (city/county/district) paid $____ for the related work.
The (city/county/district) has (___number of____) wells requiring capping in the foreseeable future. Due to the (federal/state) law and/or the legal agreement with (________) the (city/county/district) will incur estimated costs of $_____related to the capping. These liabilities are reported on the Statement of Net Position. During (reported year) the (city/county/district) paid $____ for the related work.
The (city/county/district) has property (describe in adequate detail) required to be decommissioned by (date). Due to contractual obligations with (________) the (city/county/district) will incur estimated costs of $_____related to the project. These liabilities are reported on the Statement of Net Position. During (reported year) the (city/county/district) paid $____ for the related work.