T

he corporate practice of "mothballing" contaminated properties may be coming to an end. In December 2005, the Sarbanes-Oxley Act and Financial Accounting Standards Board (FASB) Interpretation No. 47 (FIN 47) took effect, forcing public companies to recognize cleanup or disposal costs associated with facilities or equipment, including facilities that have been taken out of service or "mothballed." Such facilities are fenced off as contaminated property indefinitely as a method to avoid clean-up costs.
   A 1998 Environmental Protection Agency (EPA) study disclosed that 75 percent of publicly traded U.S. corporations surveyed violated the Security and Exchange Commission's (SEC) environmental financial debt accounting regulations. Many companies took a "don't ask, don't tell" position in the past and did not conduct environmental investigations, leading to the current increase in regulations and accountability.
   Now with FIN 47, companies can decide to remediate or sell previously mothballed properties to avoid or lessen the blow of disclosure of any environmental liabilities in their financial statements. FIN 47 is an interpretation of Financial Accounting Standard 143 or Assets Retirement Obligation. The goal is to properly recognize and categorize environmental liabilities when they first occur rather than only when retired. There is a myriad of potential environmental liabilities covered, as spelled out in numerous federal and state environmental statues, laws and regulations. Examples of the federal level include Superfund, the Clean Air Act, RCRA or hazardous waste regulations, and underground storage tank regulations.
   No single test determines whether to disclose or not to disclose material relating to environmental data in every situation. However, with the trend toward greater accountability of accounting practices by the SEC, and fines of up to $5 million and/or 20 years in prison, now is the time to take a closer look at all assets, including retired assets. The SEC is requiring more complete assessments of environmental liabilities and is also doing a better job of tracking these retired assets to insure compliance. Careful consideration about disclosure is needed to avoid public embarrassment and shareholder loss associated with accounting discrepancies, as well as fines, penalties and credit down-ratings.