Auditing

1194 words 5 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
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Therefore, the obligation to perform the asset retirement activity is unconditional even though uncertainty exists about the timing and (or) method of settlement.”
As a result, LOI would have a reasonable basis for assigning probabilities to the potential settlement dates and therefore have the ability to reliably measure the asset retirement obligation. Per ASC 410-20-25-8(b)3:
“The entity should have a reasonable basis for assigning probabilities to the potential settlement dates and potential methods of settlement to reasonably estimate the fair value of the asset retirement obligation. If the entity does not have a reasonable basis of assigning probabilities, it is expected that the entity would still be able to reasonably estimate fair value when the range of time over which the entity may settle the obligation is so narrow and (or) the cash flows associated with each potential method of settlement are so similar that assigning probabilities without having a reasonable basis for doing so would not have a material impact on the fair value of the asset retirement obligation.”

Summary of Conclusions
The table below summarizes the conclusions requiring LOI to recognize asset retirement obligations:
Description of Warehouses
Recognize Asset Retirement Obligation
2 w/ asbestos. Sales contracts allow buyer to require LOI to remove asbestos
YES – Low

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