Slide 1 GASB Statement 49 Implementation Issues The views expressed in this presentation are those of Mr. Galloway. Official positions of the GASB are determined only after extensive due process and deliberation.

Slide 2 Obligating Events Internal controls to ensure obligating events identified Approaches that have been used –Year-end inquiry to departments Similar to contingent liability inquiries, but for obligating events –Inventories of polluted sites

Slide 3 Capitalization Permitted in Limited Circumstances a.Cleanup to prepare property for sale (limited to fair value) b.Polluted property bought and cleaned for use (limited) c.Asset impaired and cleanup restores lost service utility (limited) d.Acquired capital assets have future alternative use. For example, land (limited to future service utility) –For a. & b.capitalize only if incurred within reasonable period –If project not primarily for pollution remediation, apply above to incremental outlays attributable to remediation.

Slide 4 Expected Recoveries from PRPs and Insurance Reduce expense (and expenditure, if available) and... If not realized or realizable –Net against remediation liabilities When realized or realizable –Accrete liability and report separate recovery assets (cash or receivable)

Slide 5 Insurance Recovery Example a)Government named as PRP. All response outlays reasonably estimable and expected to be (ECF) $1,000,000. No expected recoveries. b)Later in same period, old insurance policy covering pollution up to $700,000 found in vault. Government expects full recovery but does not yet consider it to be realizable. c)Recovery later considered realizable because insurer acknowledges its liability under policy.

Insurance Recovery Example (accrual basis) a)PR expense$1,000,000 PR liability$1,000,000 (To record expected PR outlays) b)PR liability $700,000 PR expense $700,000 (To record expected recovery, not yet realizable) c)Accounts receivable (PR) $700,000 PR liability $700,000 (To recognize recovery as realizable)

Slide 7 PRP Recovery Example a)Government named with others as PRP. All response outlays reasonably estimable and expected to be $2,000,000 (ECF). Government will be lead on cleanup with others agreeing and expected to reimburse $1,200,000. Cost- sharing agreement states recoveries charged ratably and payable only when work is done. b)Government incurs PR outlays of $400,000 during the year.

PRP Recovery Example (accrual basis) a)PR expense$800,000 PR liability$800,000 (To record expected PR outlays of $2 mill., net of expected recoveries of $1.2 mill.) b)PR liability $400,000 cash (or AP)$400,000 Accounts receivable (PR) $240,000 PR liability$240,000 (To record PR work, split ratably between PRPs, realizable when performed) $160,000