Opportunity for confusion

Under FAS 143 – FIN 47, a company must accrue and report estimable, material asset retirement obligations at fair value, effective for fiscal years ending after December 15, 2005, e.g., for calendar year 2005 and thereafter. As noted in the previous post, some companies have proceeded with FIN 47 implementation and others have not.

With FASB’s release in September 2006 of FAS 157, however, which instructs on fair value measurements, comes an opportunity for confusion. FAS 157 was scheduled to be effective for fiscal years beginning after November 15, 2007, which for many companies means beginning in calendar year 2008. Responding to petitions to go slower and “to consider the effect of various implementation issues,” FASB announced in a news release on November 14, 2007 that it was granting a one-year deferral of the effective date for FAS 157 for certain applications. This deferral applies to “asset retirement obligations initially measured at fair value under FASB Statement No. 143,” as itemized in the proposed FASB staff position (FSP) paper FSP FAS 157-b.

A company reasonably may be confused about when it is late in disclosing asset retirement obligations. Prior to the release of FAS 157, it was clear that a company with estimable, material asset retirement obligations was late if it had not disclosed already. Now with the one-year deferral of FAS 157 for certain applications that include asset retirement obligations, is it possible that a company is not necessarily late yet? Does it have until the fiscal year beginning after November 15, 2008 for the disclosure, which for many companies means calendar year 2009?

It is more likely, instead, that companies have until the fiscal year beginning after November 15, 2008 to upgrade fair value measurement information on their asset retirement obligations under FIN 47 to the "expanded disclosure" required under FAS 157.