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ASC 410-20-50-1 requires multiple disclosures for entities that have AROs associated with their assets. A general description of any ARO and the associated assets is required. If a reporting entity has legally segregated any assets to settle the ARO, ASC 410-20-50-1(b) requires disclosure of the fair value of those assets. This requirement only applies to assets that have been legally restricted for settlement of the ARO, such as in a sinking fund, trust, or other arrangement, and not to any general internal funding policy that a reporting entity may adopt.
As discussed in ASC 410-20-50-1(c), a reporting entity is also required to reconcile the ARO liability at the beginning of the period to the ARO liability at the end of the period. This reconciliation is required for each income statement period presented, but is only required in periods when there have been significant changes in liabilities incurred or settled, accretion expense, or revision in estimated cash flows. Best practice would be to include the reconciliation (or information sufficient to allow the user to construct the reconciliation) if any of the amounts in the reconciliation are significant, without regard to whether they have changed. In other words, a reporting entity should not look only to significant changes in the components of the reconciliation, but also look to significant changes in the liability year over year. For instance, if ARO liabilities incurred during the period are significant each year but constant, we believe that the reconciliation should be provided.
If a reporting entity has an asset retirement obligation for which no amount has been recognized, ASC 410-20-50-2 requires disclosure of the existence of the ARO and the reasons why it has not been recognized. For example, if a reporting entity has an ARO associated with an asset with an indeterminate life, no reasonable estimation of the liability is possible, so no ARO liability is recorded. However, management should consider disclosure of the potential cash flows (based on current estimated costs) related to this unrecognized ARO.
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