FASB UPDATE

On August 16, FASB issued its long-awaited Statement 143, Accounting for Asset Retirement Obligations. Begun in 1994, the project initially focused on accounting for the costs of nuclear decommissioning. FASB later expanded the project’s scope to include similar closure costs in other industries incurred at any time during the life of an asset. The standard is effective for fiscal years beginning after June 15, 2002; earlier application is encouraged.

The standard requires entities to record the fair value of a liability for an asset retirement obligation in the period in which it is incurred. When the liability is initially recorded, the entity capitalizes the cost by increasing the carrying amount of the related long-lived asset. Over time, the liability is accreted to its present value each period, and the capitalized cost is depreciated over the useful life of the related asset. Upon settlement of the liability, an entity either settles the obligation for its recorded amount or incurs a gain or loss.

On August 21, FASB distributed proposals that explore the possible addition of two major projects to its agenda: the reporting of financial performance measurements and the disclosure of intangible assets. Both proposed projects are directed toward expanding the information available to investors, creditors, and other financial statement users. The deadline for comments from constituents is September 19.

The first proposal focuses on the form and content, classification and aggregation, and display of specified items in interim and annual financial statements. Through this project, FASB seeks to address significant financial reporting concerns raised by constituents, including the proliferation of pro forma earnings measures, the lack of a common definition of financial performance, and the need for a better understanding of the use of key financial measures and ratios derived from financial statements.

The second proposal seeks to establish standards for improving disclosure of information about intangible assets not presently recognized as assets in financial statements. Such intangible assets include brand names, customer lists, and patent rights.

FASB publications may be ordered from www.fasb.org or (800) 748-0659.

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