Current day reporting and compliance requires deep understanding of laws and regulations, authoritative guidance and industry practices.
The volume and specificity of information appears endless. But isn’t it possible that we can still materially improve consistency and accuracy of reporting and communication to the public through refinement of certain areas within financial reporting?
Environmental liabilities and contingencies are two areas that improved reporting can help address. These liabilities are often long-term obligations, requiring an array of complex considerations during the development of a complete assessment and conclusion. In most circumstances, company management engages a specialist to produce a valuation of the liability and certification to establish what they believe as a best estimate. The specialists’ work is typically used by management to develop their conclusions on the value of these liabilities. Often no adjustment is made to the specialist report before recording the item to the balance sheet. This report is also used as key evidence by auditors while testing the balance sheet (such as assertions for completeness/valuation). It is common practice for the specialists to reference and follow the American Society for Testing and Materials (ASTM) International standards while completing their valuation reports.
What’s interesting is that only in 2016 were the ASTM standards updated for convergence with GAAP (and other standards) with significant updates to existing ASTM guidance, as well as the addition of guidance that did not previously exist. The update of ASTM raised the question of whether liabilities established prior to 2016 under ASTM valuation reports were in line with GAAP requirements.
The former guidance didn’t necessarily create a reporting gap because GAAP required management to maintain ultimate responsibility for all items reported (or not reported). Practically, management has used the specialist report as part of the information supporting the balance, but maintained their judgement as to whether adjustment was necessary to the third-party environmental liability before recording the amount to the balance sheet.
Due to the convergence of the standards in 2016, management will be able to bridge their ASTM reports to GAAP reporting of environmental liabilities in a much more efficient manner.
The changes to ASTM and convergence with GAAP are described in much more detail by two of the experts on the topic, Jeff Andrilenas, Environmental Lead of the TBLS Group, LLC in collaboration with Jerome Devillers, CPA and Partner at Mazars USA, in an article The Game‐Changing Impacts of Revised and New ASTM Standards for Environmental Liability Valuation, Recognition, and Disclosure.