The American Association of Certified Public Accountant's (AICPA) Accounting Standards Executive Committee issued Statement of Position (SOP) (1996) No. 96-1, Environmental Remediation Liabilities, to help entities recognize certain environmental costs. The SOP requires that in measuring their allocable liabilities for a specific site, entities should consider enacted laws, existing regulations, policies, and current remediation technologies as well as liabilities that the government or other potentially responsible parties (PRPs) will probably not pay. Entities may discount estimated liabilities to reflect the time value of money if the aggregate amount of obligation and timing of cash payments for a site are fixed or reliably determinable, with similar treatment for expected recoveries from insurers and other third parties.
With one major exception, the SOP does not expand existing generally accepted accounting principles (GAAP) since its theoretical definitions for recognizing a liability rely primarily upon the provisions of Statement of Financial Accounting Standard (SFAS) No. 5 (1975), Accounting for Contingencies, paragraph 8 (which requires recording "measurable" contingent liabilities whose likelihood of realization are "probable"), and Financial Accounting Standards Board (FASB) Interpretation No. 14 (1976), Reasonable Estimation of the Amount of a Loss--An Interpretation of Financial Accounting Standards Board (FASB) Statement No. 5, paragraph 3 (which addresses accounting for circumstances where the reasonable estimate of a loss is a range). The SOP does not address accounting for pollution control costs for current operations, costs of future site restoration, or closure costs required upon cessation of operations or sale of facilities. The FASB is now considering these issues as a distinct project. The SOP reflects the increasing emphasis on accounting for, and disclosing, environmental remediation liabilities. Hence, both public and private companies and their accountants should be increasingly vigilant in both areas to protect themselves in today's litigious society.
U. S. regulated entities must comply with over 11,000 pages of federal regulations governing the environment, plus individual state and local government regulations. Some key regulations include
1. The Congressional Comprehensive Environmental Response, Compensation and Liability Act of 1980 (EPA . . ., 1999) (CERCLA) or "Superfund," the Superfund Amendment and Re-Authorization Act of 1986, plus many other state versions of these acts, impose strict liability on site owners, transporters, and generators of hazardous substances. Strict liability ignores the potentially liable party's "fault." Superfund liability also is joint and several, making any party deemed liable potentially responsible for the entire cleanup. For example, a firm disposing of its hazardous wastes in accordance with all thencurrent requirements at approved facilities cannot claim a "due care" defense. Furthermore, "innocent" third-parties are subject to costs of waste disposal, even if they were not involved in the hazardous waste discharge (e.g., a new owner or operator will generally have little protection as a result of warranties or indemnities received from a seller). Liability has even recently been extended to lenders of parties subject to environmental laws and regulations when the lender has effectively functioned as a member of management of the PRP. Dupree and Jude (1995) note that bankruptcy laws often offer little protection from such environmental liabilities.
2. The Resource Conservation and Recovery Act (RCRA) of 1976 (U. S. EPA . . ., 1976) provides for comprehensive federal regulation of hazardous waste from point of generation to final disposal and is applicable to all generators and transporters of hazardous waste and owners and operators of hazardous waste treatment, storage, and disposal sites. …