Auditing Essay

1212 WordsSep 15, 20145 Pages
To: Controller of LOI, Files From: Accounting Class Re: Recognition of Asset Retirement Obligations for Lack of Information Date: June 2, 2014 Background Lack of Information (LOI) owns and operates 50 warehouses throughout the country. As part of LOI’s efforts to identify potential asset retirement obligations, LOI’s internal audit group held interviews with all 50 of the warehouse managers and also performed site visits at each of the 50 locations. The related findings of the interviews and site visits noted the following facts: Number of Warehouses State Laws Plans to Sell 25 w/ no asbestos N/A N/A 2 w/ asbestos No state requirements re: removal of asbestos when significantly renovated or demolished Under contract to…show more content…
ASC 410-20-25-8 indicates that an asset retirement obligation is estimable if all of the following exist: “1. The settlement date or the range of potential settlement dates 2. The method of settlement or potential methods of settlement (The term potential methods of settlement refers to methods of settling the obligation that are currently available to the entity...) 3. The probabilities associated with the potential settlement dates and potential methods of settlement…” Although LOI contends that it will not have to settle the actual retirement obligation, the transfer of the obligation to the future buyer represents a form of settlement. The guidance in ASC 410-20-25-5 requiring the recognition of both an asset retirement cost and asset retirement obligation upon acquisition of an asset with an asset retirement obligation indicates that the transfer of the obligation to another party represents an effective settlement of the obligation by the seller. Thirteen Warehouses With State Laws to be Operated Indeterminately As noted above, the state laws create an asset retirement obligation for the 13 warehouses that will continue to operate indeterminately. LOI’s contention that it will operate these warehouses indefinitely through continued maintenance is invalid since ASC 410-20 does not permit

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