How will PS 3280, Asset Retirement Obligations, change the values of assets and related amortization expense?

How will PS 3280, Asset Retirement Obligations, change the values of assets and related amortization expense? How will PS 3280, Asset Retirement Obligations, change the values of assets and related amortization expense?

1 Expert Answer

Umar Saeed

MAcc, CPA, CA, Partner,  Welch LLP

Under PS 3280, Asset Retirement Obligations (AROs), recording an ARO liability also impacts the related asset. Simply put, as an ARO liability increases, so does the capitalized value of the related asset. The accounting standard provides guidance on how to account for the liability and the related asset.


This is unlike other long-term liability standards. For example, as pension obligations or contaminated site liabilities increase, the public sector entity would normally record an expense.


The thinking behind the AROs standard is to attribute the full cost of asset ownership as an asset. Just as the costs to setup or acquire an asset represent capital costs, so should the costs to retire that same asset. Upon recording an ARO, the related asset's capital cost would increase by the amount of the recorded liability. The new cost would then be amortized annually systematically and rationally over the asset's remaining useful life.

Answers by Welch LLP

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