How does a public sector entity know if it has any Asset Retirement Obligations?

How does a public sector entity know if it has any Asset Retirement Obligations? How does a public sector entity know if it has any Asset Retirement Obligations?

1 Expert Answer

Umar Saeed

MAcc, CPA, CA, Partner,  Welch LLP

A public sector entity must examine all assets it controls to determine if it has any AROs. This includes owned (purchased or contributed), inherited, and leased assets. The entity's asset ledger must be complete.


Reviewing the various types of assets will require some legal analysis. The accounting standard requires recognition of an ARO only when there is a legal obligation present.


For example, a public sector organization has leased a facility and completely renovated it for its own use. The landlord may have a clause in the lease agreement that the property must be restored to its original state by the tenant when the lease expires. In this case, the lease agreement is what compels the recognition of the ARO.


Another example might be where a school board owns a school building and yard. The building is old and there is known to be asbestos contained within the walls. In this case, government legislation must be reviewed to understand when and how asbestos must be removed, leading to the recognition of an ARO.

Answers by Welch LLP

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