Coming late to FIN 47

In complying with FIN 47, a company determines if it has asset retirement obligations, including conditional asset retirement obligations, and accrues and reports those that are estimable and material. In its initial year of compliance, a company has the additional task of adjusting—or “truing-up”—its accounting for those asset retirement obligations from the date of incurrence of those obligations to the present. The adjustment, if material, results in a one-time accounting charge to net income, taken in the year the company adopts FIN 47. For some companies, that was the fiscal year ending after December 15, 2005, the first year of FIN 47 applicability.

It’s impossible to know how many companies failed to notice FIN 47’s arrival in 2005 and the adjustments it required, or otherwise looked away. Looking away reasonably could be expected as part of reluctance among companies to add to their workload—particularly as the task of incorporating a new accounting standard may seem complicated to implement and may require the commitment of additional resources to accomplish, and left undone may seem to have only a small likelihood of being detected as a deficiency by the SEC.

Those companies noticing and adopting FIN 47 (and a better-late-than-never attitude) after 2005 still must make the truing-up adjustment and take the one-time charge, if accounting calculations indicate it is necessary. Later is worse, to the extent that it calls attention to a company's apparent weakness in internal controls over its financial reporting. Late companies may suffer audit opinions citing the weakness. It may feel like insult added to injury when the adjustment requires restatement of financials, calling even greater attention to the issue of internal controls.