Reporting Contingencies: Environmental Liabilities

Abstract

The dawn of environmental regulation in the late 1960s and its proliferation through the early 1980s resulted in a new regulatory climate for business and increased potential contingent liabilities. Recent efforts toward convergence with international accounting standards increase disclosure and improve transparency for decision makers but also impact financial reporting. This article uses a case study set in the context of potential liability under the federal Comprehensive Environmental Response Compensation and Liability Act of 1980 (CERCLA) to illustrate financial reporting with respect to uncertain environmental liabilities under current and proposed requirements of Financial Accounting Standard 5 Accounting for Contingencies (SFAS 5), now known as Accounting Standards Update 450 (ASU 450). Financial reporting under the proposed requirements provides increased transparency for users and more complete information upon which to make decisions.