XML FeedsCompanies can't delay in putting future environmental liabilities on the books: 2005 accounting rule change impacts earnings
By CostBenefit on Mar 3, 2006 | In General, Contaminated Properties, U.S., Pennsylvania, Companies,CSR,Business,Finance, Newspaper/Mag/TV/Media Story, Contamination Cost
Link: http://www.bizjournals.com/pittsburgh/stories/2006/03/06/story6.html?from_rss=1
A new interpretation of an old accounting rule is taking a chunk out of the earnings of some of Pittsburgh's largest companies. FIN 47, which defines the Financial Accounting Standards Board's interpretation of how companies must account for conditional asset retirement obligations, requires that both public and private companies include on their financial statements any future environmental liabilities. This means that they must take into account the fair value of what it would cost to sell, dispose of, abandon or recycle their assets, according to the Financial Accounting Standards Board. Already, the change has prompted local companies to take millions of dollars in charges against earnings, including a $5.9 million charge for Allegheny Energy and a $2 million charge for Allegheny Technologies Inc. The impact of the new rule will likely be most significant in 2006 as companies report their 2005 earnings and must account for past purchases with future environmental liabilities. "Now, a lot of companies have to go back and determine what those costs would have been between the time they built or bought a building and the date of the pronouncement," said Jeff Kovacs, director of quality control at Downtown-based Alpern Rosenthal. "A lot of companies are going to recognize the liability of their costs this year." In the past, companies could wait until they had accurate estimates of the cleanup costs and the timing to record the liability. Now, however, they must record the future cleanup costs as soon as they know they will be required by law to cleanup an item when it is disposed, according to Donald Applegarth, an accountant and shareholder at Downtown-based Schneider Downs & Co. Inc. The interpretation will affect companies in the utility, refining, mining and chemical industries the most. As one example, if a building is purchased that would need to meet certain environmental cleanup regulations when it is torn down, then the company would have to record the cleanup costs of tearing it down as soon as it knows those costs may need to be incurred. Downtown-based Allegheny Technologies Inc.'s fourth-quarter 2005 and full-year results, released earlier this year, included a charge of $2 million as a result of FIN 47. The future obligation was primarily for remediation costs that would be incurred if the company ceased certain manufacturing processes that used potentially hazardous materials. Fred Solomon, a spokesman with Greensburg-based Allegheny Energy Inc., said Allegheny Energy recognized a $5.9 million aftertax charge due to FIN 47 in its fourth-quarter 2005 results. ... However, both Kovacs and Applegarth said many companies are paying little attention to the new rule. "Although larger companies ... have complied with the recognition, measurement and disclosure provisions of the new standard, other companies may not have FIN 47 on their radar screens," Applegarth said. by Jennifer Curry FOR FULL STORY GO TO: http://www.bizjournals.com/pittsburgh/stories/2006/03/06/story6.html?from_rss=1 Pittsburgh Business Times http://www.bizjournals.com/pittsburgh| « Deal Reached to Clean Toxic Bronx Site | Proposed waste strategy costly » |
