for closure or removal of long-lived assets
will bring costs out into the open.
But is it rational?
On February 7, 1996, the Financial Accounting Standards Board (FASB) issued for comment an "Exposure Draft" of a new proposed statement of financial accounting standards pertaining to nuclear plant decommissioning and other similar legal obligations, both for regulated utilities and unregulated firms. The proposed new standard, Proposed Statement of Financial Accounting Standards, Accounting for Certain Liabilities Related to Closure or Removal of Long-Lived Assets, would apply to fiscal years beginning after December 15, 1996. The comment period ends May 31, 1996.
If approved as drafted, the new accounting standard will pose important questions for utilities, both in its interpretation and its likely effects on accounting and depreciation practices.
s Depreciation Practice. Current treatment, as a component of depreciation, would no longer apply exclusively. The new
standard would affect the "group concept" of depreciation commonly practiced by utilities.
s Accounting Methods. Future accounting treatment would depend on whether the cost qualifies under the new standard either as a "liability" or a cash "expense."
s Backloading. Either way (liability or cash expense), the new standard will create a significant backloading of costs for covered obligations.
s Disclosure. The new standard will likely attract attention both from regulators and investors, as it will require utilities to identify and disclose certain future obligations.