The impact of GAAP guidance on asset retirement obligations

In this study, we assess issues faced by accountants in implementing Statement of Financial Accounting Standard (SFAS) 143, Accounting for Asset Retirement Obligations (AROs) and Financial Interpretation Number (FIN) 47, which was issued to clarify accounting for conditional AROs. The assessments were made by accountants of companies belonging to the Edison Electric Institute (EEI) since the EEI originally initiated the Financial Accounting Standards Boards' (FASB's) ARO agenda item. The findings suggest that SFAS 143 and FIN 47 have provided accountants with increased clarity for ARO identification and have resulted in more meaningful recognition. In addition, more liabilities are reported even though it can be argued that ceteris paribus management will choose the method that minimizes the amount of the liability. Overall, the findings suggest that the FASB's guidance on asset retirement obligations improved the reporting model and their implementation guidance improved companies' application of the rules.