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For SEC registrants, important interpretative guidance with respect to product and environmental remediation liabilities is included in SAB Topic 5.Y, Accounting and Disclosures Relating to Loss Contingencies (codified in ASC 450-20-S99-1), and SAB Topic 10.F, Presentation of Liabilities for Environmental Costs (codified in ASC 980-410-S99-1). ASC 450-20-S99-1 indicates that product and environmental remediation liabilities are typically of such significance that specific disclosures regarding the judgments and assumptions underlying the recognition and measurement of the liabilities are necessary to prevent the financial statements from being misleading. The SEC staff has indicated that, in addition to the disclosures required by ASC 450 and ASC 410-30, it may be necessary to disclose the following information to prevent the financial statements from being misleading:

Excerpt from ASC 450-20-S99-1

  • Circumstances affecting the reliability and precision of loss estimates.
  • The extent to which unasserted claims are reflected in any accrual or may affect the magnitude of the contingency.
  • Uncertainties with respect to joint and several liability that may affect the magnitude of the contingency, including disclosure of the aggregate expected cost to remediate particular sites that are individually material if the likelihood of contribution by the other significant parties has not been established.
  • Disclosure of the nature and terms of cost-sharing arrangements with other potentially responsible parties.
  • The extent to which disclosed but unrecognized losses are expected to be recoverable through insurance or other sources, with disclosure of any material limitation of that recovery.
  • Uncertainties regarding the legal sufficiency of insurance claims or solvency of insurance carriers.
  • The time frame over which the accrued or presently unrecognized amounts may be paid out.
  • Material components of the accruals and significant assumptions underlying estimates.

ASC 450-20-S99-1 further states that reporting entities should disclose in the footnotes material liabilities that may occur upon the sale, disposal, or abandonment of a property related to site restoration, monitoring commitments, or other exit costs as a result of unanticipated contamination of assets. These disclosures would generally include the nature of the costs, total anticipated costs, total costs accrued to date, balance sheet classification of the accrued amounts (i.e., current versus noncurrent), and the amount of reasonably possible additional losses.
The SAB topic also states that if an asset held for sale will require remediation prior to the sale, or as a condition of sale, a footnote should describe how these future expenditures are considered in the assessment of the asset’s value. Additionally, a reporting entity should disclose if it may be liable (unless the likelihood of a material unfavorable outcome is remote) for remediation of environmental damage relating to assets or businesses previously disposed. The SEC registrant’s accounting policy with respect to such costs should be disclosed.
The SAB topic is not intended to impose an affirmative obligation to determine potential closure costs for an operating manufacturing plant that the reporting entity has no plans to sell or abandon and for which no ASC 450 obligation exists.
In addition to the specific topics discussed by the SEC staff within the SAB topic, reporting entities should be aware of the following with respect to environmental reporting.
  • Compliance costs

    The SEC has historically viewed the cost of compliance with all specific federal, state, local, and foreign laws relating to the environment as part of the total environmental expenditures. The SEC staff has suggested that the future estimated cost of compliance be disclosed in accordance with the guidance in ASC 450-20-S99-1.
  • Accrued costs

    There is no requirement to disclose amounts accrued for specific contingencies unless failure to disclose such amounts would omit information material to an investor. In past comment letters, and as implied in ASC 450-20-S99-1, the SEC staff has requested information on the total amounts accrued for environmental remediation liabilities, such as breakdowns by type of accrual or by type of site. In some instances, the SEC staff may request this supplemental information.
  • Uncertainties

    Reporting entities should ensure that disclosures related to environmental accruals include discussion of any uncertainties. Disclosures related to environmental liabilities should include details about the uncertainties related to the estimate and the range of reasonably possible losses in excess of the amount recorded as a liability, or state that such an estimate cannot be made.
The SEC staff has indicated that it generally expects SEC registrants to record an estimated liability for environmental exposures. See FSP 23.4 for additional discussion of SEC reporting considerations regarding contingencies.

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