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Full disclosure: Other liabilities · PwC's accounting podcast

• 0:00
  SPEAKER_00: Thought Leadership from PWC.
• 0:06
  SPEAKER_01: Welcome to PWC's Accounting Podcast.
• 0:09
  SPEAKER_01: I'm Heather Horn.
• 0:11
  SPEAKER_01: Thanks for tuning in to the next episode in our full disclosure summer series, a show all about presentation and disclosure from the top of the financial statements down to the last footnote.
• 0:21
  SPEAKER_01: While it may sound like accounting 101, I guarantee you'll learn something new each episode.
• 0:27
  SPEAKER_01: Our focus today, other liabilities, specifically payables, contingencies, asset retirement obligations, and environmental liabilities.
• 0:37
  SPEAKER_03: You know, you really just have to sort of think about what the reader needs to know to understand the obligation.
• 0:44
  SPEAKER_02: And then when you think about accruals, disclosures for liabilities in general, just be mindful of the specific requirements in SX Rule 502.
• 0:53
  SPEAKER_01: Those are my guests, Pat Durbin and John Britton, both PWC National Office Partners.
• 0:59
  SPEAKER_01: We cover a lot of ground today talking about what you need to know about the presentation and disclosures of other liabilities.
• 1:06
  SPEAKER_01: This can be a big area on the balance sheet for companies that have these items.
• 1:09
  SPEAKER_01: And of course, the requirements can get tricky, especially for some of the more judgmental areas.
• 1:15
  SPEAKER_01: So, with lots of questions to be answered, let's get started.
• 1:23
  SPEAKER_01: Pat, John, thanks so much for joining me today and looking forward to a topic that can go in a lot of different directions.
• 1:30
  SPEAKER_01: So I know we're going to be covering a lot of ground, but I thought we could start things off by talking about one of the most common liabilities.
• 1:38
  SPEAKER_01: And I think this may be a liability of almost every company, if not every company, and that would be accounts and notes payable.
• 1:45
  SPEAKER_01: So where can you start with us with the presentation and disclosure for those?
• 1:49
  SPEAKER_03: So maybe it's best to start with what you have to present separately on the balance sheet.
• 1:55
  SPEAKER_03: And there is a specific rule in the SEC guidance, SEC regulation SX, Rule 502.
• 2:02
  SPEAKER_03: And I should say that's for our commercial and industrial companies.
• 2:06
  SPEAKER_03: So pretty much everybody besides banks or insurance companies or maybe some other brokerage organizations.
• 2:13
  SPEAKER_03: And we won't delve into those, but just uh based on regulation SX Rule 502, you need to state separately any amounts that are payable to trade creditors, so sort of your normal suppliers in the ordinary course of business, amounts payable to banks for borrowings, amounts payable to holders of commercial paper, amounts payable to factors or other financial institutions for borrowings, also amounts payable to related parties, and then finally any amounts payable to underwriters, promoters, or employees that aren't otherwise captured under the related party caption.
• 2:53
  SPEAKER_01: So then, Pat, I know for some of these rules you have an option of presenting it on the face of financial statements or in the footnotes.
• 3:01
  SPEAKER_01: What how about in this case?
• 3:02
  SPEAKER_03: Right.
• 3:03
  SPEAKER_03: So in terms of the list that I just shared, if you have amounts payable to banks or I'll call it other borrowings, so the amounts payable to factors or other financial institutions or commercial paper, you can aggregate those on the face of the balance sheet as long as you disaggregate them in the notes.
• 3:21
  SPEAKER_03: So you do have that option.
• 3:22
  SPEAKER_03: The others actually do need to be presented separately on the face of the balance sheet.
• 3:28
  SPEAKER_01: And then, Pat, I know you said at the beginning this is specific to SEC registrants.
• 3:33
  SPEAKER_01: So any thoughts for private companies in terms of at least general practice of what we see?
• 3:38
  SPEAKER_03: I would say really the only guidance we have is in the SEC regulations.
• 3:44
  SPEAKER_03: So we sort of look to that as de facto gap.
• 3:47
  SPEAKER_03: And I would say practice by and large is for private companies to follow a similar approach to their balance sheet classification and presentation.
• 3:57
  SPEAKER_01: All right, that's helpful.
• 3:59
  SPEAKER_01: And then another question for you.
• 4:01
  SPEAKER_01: So we when we did our episode on debt presentation and disclosure, Susanna Chip also briefly touched on structured payables.
• 4:10
  SPEAKER_01: I know this topic, I feel like that keeps coming up.
• 4:13
  SPEAKER_01: And I know the FASB is also looking at disclosures in those areas.
• 4:17
  SPEAKER_01: But can you maybe help uh the listeners?
• 4:20
  SPEAKER_01: I think sometimes we get questions around what's a trade payable versus what's a structured payable.
• 4:26
  SPEAKER_01: And so any thoughts on that?
• 4:28
  SPEAKER_03: Well, that is essentially the key question.
• 4:30
  SPEAKER_03: If you think back to the list that I just shared, if it's uh truly still a trade payable or an amount payable to a supplier, then you need to present that separately.
• 4:39
  SPEAKER_03: If it actually has morphed through the structured payables program into being effectively a bank borrowing, then it could be aggregated with other bank borrowings.
• 4:49
  SPEAKER_03: I think the other more important implications of whether it's one or the other were covered in that earlier podcast and probably have more to do with the cash flow presentation, perhaps, than the balance sheet presentation.
• 5:01
  SPEAKER_03: But it really comes down to that fundamental question, which I think as we described in that earlier podcast is fairly judgmental.
• 5:08
  SPEAKER_03: But the key question being did I effectively borrow money from the bank and they've sort of taken on the obligation to pay the suppliers on my behalf, or do I still have a payable to my suppliers?
• 5:22
  SPEAKER_03: It's I'm just sort of administering through a banking arrangement.
• 5:26
  SPEAKER_01: All right, that's helpful.
• 5:27
  SPEAKER_01: So then now that we've covered payables, John, let's move on to accruals.
• 5:32
  SPEAKER_01: But maybe before we get into accruals, I think there's a question either one of you could answer, which is, I mean, obviously there's sort of a fine line between AP and accruals because accruals generally become AP.
• 5:44
  SPEAKER_01: So from a practical point of view, I think a lot of companies think sometimes think about some of these things together.
• 5:50
  SPEAKER_01: But what can you share it that's specific to maybe general types of accruals, John?
• 5:56
  SPEAKER_02: Well, when I think about accruals and kind of presentation of disclosure, I really think about this 5% rule.
• 6:02
  SPEAKER_02: And that rule is covered in the SEC rule that Pat referenced earlier.
• 6:07
  SPEAKER_02: And it basically says that it requires companies to state separately in the balance sheet or in the note any item that would be classified as current.
• 6:14
  SPEAKER_02: That's in excess of 5% of total current liabilities, or 5% of liabilities if it's not otherwise addressed by specific categories of SX 502 and not subject to current classification.
• 6:27
  SPEAKER_01: All right.
• 6:28
  SPEAKER_01: And then any specific disclosures in terms of accruals that companies should focus on?
• 6:35
  SPEAKER_02: Well, I do want to discuss exit and disposal costs, including restructuring, because there's some very specific guidance about their presentation and disclosure.
• 6:43
  SPEAKER_02: ASC 42010 requires a number of disclosures in the footnotes and the period in which an exit or disposal activity is initiated and until that activity is completed.
• 6:54
  SPEAKER_02: And those disclosures include a description of the exit or disposal activity, including the facts and circumstances leading to the expected activity and the expected completion date.
• 7:04
  SPEAKER_02: And then for each major type of cost associated with the activity, so we're talking about one-time employee termination benefits, contract termination costs, and other associated costs.
• 7:15
  SPEAKER_02: There's some other required disclosures, such as the total amount expected to be incurred in connection with the activity, the amount that's actually incurred in the period, and the cumulative amount incurred to date.
• 7:27
  SPEAKER_02: There's also a reconciliation that's required of the beginning and ending liability balances, and that reconciliation should disclose changes during the period attributable to costs incurred and charged to expense, costs paid or otherwise settled, and any adjustments to the liability with an explanation of the reasons for the adjustment.
• 7:48
  SPEAKER_02: For each major type of cost disclosed, companies are also required to disclose the line item in the income statement that includes those costs.
• 7:56
  SPEAKER_02: And for each reportable segment, you also need to disclose the total amount of cost expected to be incurred in connection with the activity, the amount incurred in the period, and the cumulative amount incurred to date, net of any adjustments to the liability with an explanation of the reasons for the adjustment.
• 8:13
  SPEAKER_02: And if a liability for a cost associated with the activity is not recognized because the fair value cannot be reasonably estimated, you should disclose that fact and the reasons why.
• 8:24
  SPEAKER_01: Well, so John, it's a lot of disclosures.
• 8:29
  SPEAKER_03: Yeah, I was just gonna jump in, Heather, maybe with one quick reminder, just reflecting on that list.
• 8:36
  SPEAKER_03: And I know we're talking really about presentation and disclosure here, but a lot of those disclosures really drive off of what's happening with the underlying movements in the liability.
• 8:47
  SPEAKER_03: And so having processes in place to really monitor these activities timely, particularly when there are sort of future costs where the plans have changed, there is a requirement to capture that in the disclosures as well.
• 8:59
  SPEAKER_01: All right, that's helpful.
• 9:01
  SPEAKER_01: So then let's move on to another topic.
• 9:03
  SPEAKER_01: And this is one I've spent a lot of time personally dealing with, um, and that's environmental liabilities.
• 9:09
  SPEAKER_01: And this is also, I think, an evolving area with the additional focus on ESG disclosures.
• 9:15
  SPEAKER_01: And so, Pat, specifically ASC 41030 has accounting considerations related to environmental, but how about from a presentation and disclosure perspective?
• 9:26
  SPEAKER_03: Yeah, well, maybe to start, it's helpful just to put it in context.
• 9:30
  SPEAKER_03: The guidance in ASC 41030 is really just interpretive guidance of the broader loss contingency guidance in ASC 450, but specific to environmental remediation obligations, and probably also worth distinguishing that from maybe some of the things that companies will be doing or costs that they may be incurring to, let's say, decarbonize their businesses.
• 9:57
  SPEAKER_03: Those are ongoing costs of their business in whatever form they may take.
• 10:02
  SPEAKER_03: They might be capital in nature, they might be expense in nature.
• 10:05
  SPEAKER_03: This guidance really gets at environmental contamination that was caused by the company's operations in the past, and that in combination typically with environmental legislation.
• 10:18
  SPEAKER_03: So in the US, we have the EPA, we have the Superfund legislation, various other states and jurisdictions have similar legislation.
• 10:26
  SPEAKER_03: That's really what triggers the liability recognition for environmental remediation.
• 10:32
  SPEAKER_03: And so the disclosures kind of flow from that context.
• 10:36
  SPEAKER_03: I guess if we focus on then exactly what we do need to present in the balance sheet related to environmental remediation obligations, and then we can get to disclosures.
• 10:47
  SPEAKER_03: The classification requirements on the balance sheet are pretty straightforward.
• 10:51
  SPEAKER_03: If you have environmental costs, environmental remediation costs you expect to incur within the next 12 months, they would be classified as current.
• 10:58
  SPEAKER_03: The remainder of the obligation would be classified as non-current.
• 11:03
  SPEAKER_03: Sometimes we get into discussions about the right of offset.
• 11:06
  SPEAKER_03: In many cases, a company will either have insurance that provides some level of recovery related to their environmental expenditures, or in many cases, there may be other parties, other third parties who are indemnifying the company, at least in part, for some of those expenditures.
• 11:23
  SPEAKER_03: And so we get into the question of whether it's appropriate to offset those recoveries with the underlying environmental liability.
• 11:32
  SPEAKER_03: We have guidance generally on the right of offset in ASC 210.
• 11:36
  SPEAKER_03: One of the key elements of those conditions is that you need to have amounts payable and receivable from the same parties.
• 11:44
  SPEAKER_03: And virtually in all cases, you're going to be making payments to remediate environmental contamination, either to suppliers of those services or paying fines or other monitoring costs.
• 11:58
  SPEAKER_03: Those aren't the same people that you're getting the recoveries from, so you virtually never qualify for the right of offset.
• 12:04
  SPEAKER_03: But there's nothing special about environmental remediation obligations in terms of the ability to offset.
• 12:11
  SPEAKER_03: A related question then also is on the income statement, where do I put these costs?
• 12:15
  SPEAKER_03: Either when I typically when I accrue them, and I may also be accruing the recoveries at the same time.
• 12:23
  SPEAKER_03: Unlike the balance sheet requirements, you can actually offset, or in fact, you should offset the recoveries of those environmental costs, whether they come from insurers or third-party indemnifiers with the expenses.
• 12:37
  SPEAKER_03: The only proviso on the income statement is that the nature of these costs are operating.
• 12:44
  SPEAKER_03: I mean, many times companies might like to assert, well, it's past, it's behind me, it's not something I do.
• 12:50
  SPEAKER_03: Well, they were operations that caused the contamination, and therefore the expenses you're incurring are required to be presented as operating expenses.
• 12:59
  SPEAKER_01: I guess, Pat, one quick point on the netting on the income statement.
• 13:03
  SPEAKER_01: And this is obviously not about recognition, so we won't go into too much detail, but I do think in practice, often there is a lag between maybe when you have to recognize the accrual for the liabilities and any insurance recovery or otherwise.
• 13:19
  SPEAKER_01: So just from a perspective of a company thinking about it, they shouldn't necessarily expect this always going to happen in the same period.
• 13:27
  SPEAKER_01: But I think that's a good lead-in then to how should you think about disclosure in this area?
• 13:32
  SPEAKER_03: Well, I think it's a good clarification, Heather.
• 13:34
  SPEAKER_03: It may happen in different periods, but the requirement to present them in the same line uh still exists.
• 13:43
  SPEAKER_03: So you might end up with an expense in one period and perhaps income in another period, that that could still happen.
• 13:49
  SPEAKER_03: All the more recent disclosure is going to be important, right?
• 13:53
  SPEAKER_03: Right, about anything strange that's happening in the income statement.
• 13:56
  SPEAKER_03: And I think that's really if we think about disclosures and we remember that this is again really just in the context of loss contingencies in general, where there is really very minimal explicit disclosure requirements.
• 14:11
  SPEAKER_03: It's really just focused on the broad principle of what does the reader need to know to really understand this liability.
• 14:19
  SPEAKER_03: I mean, there are a few specific things related to environmental, but for the most part, it's what's the nature of the loss or the conditions or circumstances that gave rise to the loss, to the extent that it's still an estimated loss, meaning you don't know exactly how much it's going to cost you over the years, what's the nature of the underlying risks and uncertainties that could affect that estimate.
• 14:42
  SPEAKER_03: You might be in a situation where you're actually unable to estimate reasonably a specific amount within a range.
• 14:50
  SPEAKER_03: So you might be applying some of that guidance around accruing to the low end of a range.
• 14:55
  SPEAKER_03: So those would be important disclosures.
• 14:56
  SPEAKER_03: But again, these are just, I mean, the only principle actually that's in the standard says disclosures may be necessary so that the financial statements aren't misleading, which again, this dates back to 1973.
• 15:08
  SPEAKER_03: It's fairly broad, it's not all that helpful.
• 15:10
  SPEAKER_03: But you know, you really just have to sort of think about what the reader needs to know to understand the obligation.
• 15:16
  SPEAKER_01: Well, and Pat, I think in particular in this case, because you do often go through stages where maybe initially you really don't have a sense of the scope of the issue, and then you get more information over time, you have settlements with you know various agencies, et cetera.
• 15:32
  SPEAKER_01: It's definitely uh an area where perhaps more rather than less disclosure can be helpful from a user perspective.
• 15:40
  SPEAKER_01: Absolutely.
• 15:41
  SPEAKER_01: All right.
• 15:41
  SPEAKER_01: So then that actually leads into other types of contingencies and uh, you know, how do we think them more broadly about lost contingencies?
• 15:50
  SPEAKER_01: And I think, Pat, if I remember correctly, you and I did a whole podcast about recognition, but maybe we can talk focus here on disclosure.
• 15:57
  SPEAKER_03: Yeah, and the disclosures do depend a little bit on whether you've met that recognition threshold that we talked about.
• 16:03
  SPEAKER_03: Um, if you've actually accrued a loss, um, which is kind of what we're talking about here, disclosures about a loss you've already accrued.
• 16:10
  SPEAKER_03: Again, you fall back on that fairly broad disclosure principle, which says you may need to provide additional disclosures so that the financial statements are not misleading.
• 16:20
  SPEAKER_03: It really becomes a little bit more judgmental when you haven't yet achieved that recognition threshold.
• 16:27
  SPEAKER_03: So now you have a contingent loss that you haven't yet accrued.
• 16:31
  SPEAKER_03: You know that it exists as a contingency, but for whatever reason you've concluded it's not yet probable or reasonably estimable.
• 16:39
  SPEAKER_03: There are actually more specific disclosure requirements, although not terribly specific, they just require you to describe the nature of the contingency, the potential range of loss if you can estimate it.
• 16:52
  SPEAKER_03: In many cases, in practice, people will uh typically say that they are unable to estimate the amount of the loss.
• 17:00
  SPEAKER_03: And that's not necessarily a problem because they uh either it's not probable or not reasonably estimable.
• 17:06
  SPEAKER_03: But what really becomes the challenge is how do you balance the needs of the users of the financial statements for information about what's potentially a material uncertainty for the company with the company's appropriate need to continue to attempt to manage and mitigate that risk in either legal or commercial proceedings and not prejudice those activities by providing additional disclosures in the financial statements.
• 17:35
  SPEAKER_03: And there's really not an easy solution to that dilemma because both are relevant.
• 17:41
  SPEAKER_03: Users of financial statements have uh a right and a need to know that those uncertainties are out there and that they could be material, but at the same time, um, certainly companies have a right to not divulge information that could be prejudicial to their arguments, their defenses, et cetera.
• 17:59
  SPEAKER_01: So, Pat, from a best practice perspective, then I do think it's a big balancing act.
• 18:06
  SPEAKER_01: How do you see companies sometimes trying to balance those two different needs?
• 18:10
  SPEAKER_03: Well, I think the real challenge often comes when you haven't yet accrued something, and then you get to the point where you need to make an accrual.
• 18:19
  SPEAKER_03: And the real dilemma there is did I provide sufficient foreshadowing disclosures about the potential for that loss?
• 18:28
  SPEAKER_03: Again, once I've accrued it, presumably the information now is there.
• 18:32
  SPEAKER_03: It's more the I haven't accrued it, what's the potential?
• 18:37
  SPEAKER_03: And that's something that we see frequently.
• 18:39
  SPEAKER_03: The SEC will ask questions about when a company has taken a large charge for an accrual because these things typically don't arise overnight.
• 18:48
  SPEAKER_03: Where were the disclosures that alerted the reader to this possibility?
• 18:52
  SPEAKER_03: And I would say there's a pretty wide spread in practice in terms of how specific, how detailed those disclosures are in advance of the accrual.
• 19:04
  SPEAKER_03: Um, it's just inherent in the nature of the types of issues the companies are dealing with.
• 19:10
  SPEAKER_03: Again, they're not going to want to divulge a lot of specifics or particulars if they haven't yet concluded that a loss is probable.
• 19:18
  SPEAKER_03: And so I think it's just using your best judgment and trying to at least indicate the potential, provide enough of the circumstances.
• 19:27
  SPEAKER_03: Most cases, there's some degree of public knowledge of some of these things anyway.
• 19:32
  SPEAKER_03: So working within that framework, um, how can I alert the reader without, again, overly prejudicing my position in either commercial or legal matters.
• 19:42
  SPEAKER_01: And I think, Pat, I know this also is not a podcast about controls, but this is a great place to put in a plug for um contemporaneous documentation because I think the more a company documents why it disclosed what it did or didn't, then as things continue to evolve, they have a good sort of groundwork as you know for for what they've done in case there are questions later.
• 20:07
  SPEAKER_01: So that can be really helpful.
• 20:09
  SPEAKER_03: Yeah, certainly best practice for disclosure committee, disclosure controls of procedures, audit committee communication on these types of issues.
• 20:16
  SPEAKER_01: All right.
• 20:17
  SPEAKER_01: So that's helpful, Pat.
• 20:18
  SPEAKER_01: So let's turn to then another area of accrual where there can be changing estimates over time, and that's in the area of asset retirement obligations.
• 20:28
  SPEAKER_01: And John, I made me realize this is actually a great topic for recognition and measurements.
• 20:34
  SPEAKER_01: I mean, that's another podcast.
• 20:36
  SPEAKER_01: But for today, let's focus on presentation and disclosure in the areas of arrows.
• 20:42
  SPEAKER_01: But given that we have a broad listener base, at least let's start by explaining what we mean when we say ARO.
• 20:48
  SPEAKER_02: So an asset retirement obligation, uh, I think the key thing to remember there is this is a legal obligation associated with the retirement of a long-lived asset that results from the acquisition, construction, development, and the normal operation of that asset.
• 21:04
  SPEAKER_02: So one thing I wanted to note here is that AROs are specifically scoped out of the environmental obligations topic as they arise from normal operations of the facility, even if those retirement activities include some environmental contamination arising from those normal operations.
• 21:21
  SPEAKER_02: So these obligations are common for capital-intensive companies that have major productive assets that will ultimately be removed from service, including industries like landfills, power plants, oil and gas operations, mining operations, and then other operations that might deal with asbestos containing materials.
• 21:40
  SPEAKER_01: All right.
• 21:41
  SPEAKER_01: So definitely industries you and I both have experience with.
• 21:44
  SPEAKER_01: So then uh, John, where do we look for these disclosures and what are some of the general requirements?
• 21:51
  SPEAKER_02: Yeah, so the disclosure requirements are laid out in ASC 41020, and um, you've got to have a description of the ARO and the related long librask.
• 22:00
  SPEAKER_02: And then the fair value of any assets that might be legally restricted to settling the AROs, those need to be disclosed as well.
• 22:08
  SPEAKER_02: And then one of the biggest pieces of disclosure here is there needs to be a roll forward of the ARO, starting with the beginning balance and reconciling movements during the reporting period to the ending balance.
• 22:20
  SPEAKER_02: And you've got to specifically identify any liabilities that you incurred during the period, any liabilities that were settled during the period, the amount of accretion expense over the period, and then any revisions to estimated ARO cash flows.
• 22:36
  SPEAKER_02: And in some instances, companies can't reasonably estimate an ARO.
• 22:40
  SPEAKER_02: So for example, it maybe can't determine the expected settlement date of the ARO or the retirement date of the long live assets, not so certain.
• 22:49
  SPEAKER_02: Then you need to disclose the reasons why you have not recognized an ARO and disclose the fact that you didn't recognize that liability.
• 22:57
  SPEAKER_02: And then just one bonus presentation note the guidance also states that accretion expense should be classified in operating expenses.
• 23:05
  SPEAKER_01: All right.
• 23:06
  SPEAKER_01: It seems so easy when you lay out the disclosures, but I know it's much more complicated than it seems.
• 23:12
  SPEAKER_02: That's true.
• 23:13
  SPEAKER_03: Maybe one point I just highlight, Heather, because we didn't really hit on it in the environmental section, but John referred to sort of the accretion notion in the ARO space.
• 23:22
  SPEAKER_03: And those liabilities are required to be discounted to present value.
• 23:26
  SPEAKER_03: In most cases, the environmental obligations are not, or they don't qualify for discounting.
• 23:33
  SPEAKER_03: But if in fact they do qualify for discounting, that is one of the specific disclosure requirements for environmental obligations, is the way the assumptions you use to discount, you know, the interest rate, the timing of the payment, et cetera.
• 23:48
  SPEAKER_01: All right.
• 23:48
  SPEAKER_01: That's a very helpful reminder.
• 23:50
  SPEAKER_01: And actually, on the point of going back to something from environmental, John, Pat talked about offsetting, and you mentioned that companies may have assets that are legally restricted.
• 24:01
  SPEAKER_01: So often we'll see like these trust funds that are set up for AROs.
• 24:06
  SPEAKER_01: And I know we sometimes get that same question of whether or not those can be set off.
• 24:11
  SPEAKER_01: So can you give us a quick reminder?
• 24:14
  SPEAKER_02: Yeah, I think what Pat referred to before is still carries the day here.
• 24:19
  SPEAKER_02: And that is, you know, we generally see those things grossed up in the balance sheet.
• 24:24
  SPEAKER_02: So I don't think generally you would qualify for right of offset in that situation.
• 24:29
  SPEAKER_01: Agree.
• 24:29
  SPEAKER_01: And I think another key point there, and we definitely, this is a whole other podcast, but if you do have those trust funds and they have investments, then you still have to make all the regular investment disclosures.
• 24:40
  SPEAKER_01: So just something to keep in mind if companies do have those.
• 24:44
  SPEAKER_01: So definitely these are some big areas, can be big areas on the balance sheet if for companies that have these items.
• 24:52
  SPEAKER_01: And I know we talked about a lot of different requirements here, starting with probably some of the more straightforward and getting into some of these more judgmental areas.
• 25:01
  SPEAKER_01: So I like to wrap up by asking you guys what advice you would give for companies as they think about this part of your balance sheet.
• 25:08
  SPEAKER_01: And John, I'll start with you.
• 25:11
  SPEAKER_02: Okay, I guess what I would say is it's really important to understand any eventual retirement obligations you might have associated with operating major productive assets.
• 25:20
  SPEAKER_02: You know, legal obligations can exist on a contractual basis or they may be imposed by regulatory bodies.
• 25:27
  SPEAKER_02: And once you do identify that type of obligation, there's some robust disclosure that's required around the nature of the obligation as well as the long-lived asset.
• 25:37
  SPEAKER_02: And then when you think about accruals and disclosures for liabilities in general, just be mindful of the specific requirements in SX Rule 502 for accounts that need to be presented on the face of the balance sheet rather than in the notes, as well as amounts that uh should be stated separately based on that 5% rule that we discussed.
• 25:58
  SPEAKER_02: And that can change over time.
• 25:59
  SPEAKER_02: So companies should be considering that each reporting period.
• 26:02
  SPEAKER_01: All right, that's helpful.
• 26:03
  SPEAKER_01: And then Pat, how about from your perspective?
• 26:06
  SPEAKER_03: So I'd focus probably just on the disclosures about contingencies and really this tension between the information needs of the users of the financial statements and the uh companies' desire to avoid prejudicing their situation in either litigation or commercial negotiations.
• 26:28
  SPEAKER_03: It's it's a challenge, but it's really important, I think, for the users of the financial statements to be able to understand what are those uncertainties.
• 26:37
  SPEAKER_03: And it's probably more about what isn't accrued and is not reflected on the balance sheet than what is.
• 26:43
  SPEAKER_03: And so just keeping that perspective in mind as you develop these disclosures, I think is really important.
• 26:49
  SPEAKER_01: All right.
• 26:50
  SPEAKER_01: Helpful reminders.
• 26:51
  SPEAKER_01: And then I'll have to say I'm a little disappointed you guys didn't come with any accounting jokes.
• 26:56
  SPEAKER_01: I have had some of those on past podcasts.
• 26:59
  SPEAKER_01: Uh, but I will ask one of my typical stump the experts question.
• 27:04
  SPEAKER_01: So my sense is that original accounting in this area came from ARB 43.
• 27:09
  SPEAKER_01: So I'm not gonna ask you where it started.
• 27:11
  SPEAKER_01: But John, I will ask you the precursor to the codification for AROs was FOS 143.
• 27:18
  SPEAKER_01: So do you remember when that guidance came out?
• 27:22
  SPEAKER_02: Oh my gosh.
• 27:23
  SPEAKER_02: Um, let me see if I can think back.
• 27:26
  SPEAKER_02: I'm gonna say that that one came out mid-90s.
• 27:29
  SPEAKER_02: Am I thinking that correctly?
• 27:32
  SPEAKER_01: So I think it's the early 2000s because it was during my very first tour in the national office that we were issuing guidance, but that doesn't mean it's when it came out.
• 27:46
  SPEAKER_01: Fact check.
• 27:47
  SPEAKER_01: John was so close.
• 27:48
  SPEAKER_01: FAS 143 was issued in the summer of 2001, not in the 1990s.
• 27:58
  SPEAKER_01: And then, Pat, for you, I swear to laughed when you referenced environmental went back to 1973 to FAS5 because I was thinking about the SOP that came out.
• 28:09
  SPEAKER_01: So, do you can you remind us what that SOP was and when that came out?
• 28:13
  SPEAKER_03: Well, see, this is an easy one because SOPs were prefixed by the year they were issued.
• 28:19
  SPEAKER_03: So it was SOP 96.3.
• 28:21
  SPEAKER_03: So I know it was 1996 when it came out.
• 28:24
  SPEAKER_01: All right, well, you did remember which SOP.
• 28:27
  SPEAKER_02: So and I knew something came out in the mid 90s.
• 28:30
  SPEAKER_02: Yes, you were.
• 28:30
  SPEAKER_01: You were thinking of Pat's answer.
• 28:32
  SPEAKER_01: So fact check.
• 28:38
  SPEAKER_01: We'll give Pat half credit for this one.
• 28:40
  SPEAKER_01: The SOP did come out in 1996, but it was the first statement of position in the FAS to be put out that year.
• 28:47
  SPEAKER_01: So that would make it SOP 96-1, not three.
• 28:54
  SPEAKER_01: All right, these are um some tough topics.
• 28:57
  SPEAKER_01: And actually, yeah, like I said, I think both Aeros and Environmental could use a recognition and measurement podcast, so I may be having you both back.
• 29:04
  SPEAKER_01: But thanks again for joining me today.
• 29:06
  SPEAKER_02: Thanks, Heather.
• 29:07
  SPEAKER_02: Thank you.
• 29:09
  SPEAKER_01: That does it for today.
• 29:11
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• 29:12
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• 29:16
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• 29:20
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• 29:24
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• 29:29
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• 29:36
  SPEAKER_01: From Thought Leadership at PWC, I am Heather Horn.
• 29:39
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