Terms

Here are some terms, abbreviations, and acronyms that are briefly explained below or otherwise shown in the context of environmental disclosure.

Accrue (accrued, accrual)—to record on company books, i.e., accounting records. Synonymous with recognize.

For example, under FAS 143, an asset retirement obligation is accrued (recorded) on the company balance sheet as a liability and an offsetting increase is made in the amount carried as the value of the associated asset.

Asset—a probable future economic benefit obtained from a past transaction, from CON 6.

An asset has three essential characteristics, as depicted in CON 6, which are a capacity to contribute to future net cash inflows, a control of access to that benefit, and the fact that the transaction creating the benefit already has occurred.

On a company's balance sheet, assets equal liabilities plus worth. So if an asset is added to the left side of the equation, the value of the right side also must be increased, i.e., an equivalent addition must be made in liability value or worth.

Asset retirement obligation or ARO—a commitment for action to be taken in the future under FAS 143 and FIN 47 before a tangible, long-lived asset can be retired. Tangible, long-lived assets may be property, facilities, equipment, or even equipment components. Retirement would be sale, abandonment, recycling, or disposal in some manner.

For an action to qualify as an asset retirement obligation, there must be a legal obligation to take the action, such as a remediation, and the necessity for the action must result from normal operation of the asset.

For example, the need to remove asbestos-containing materials before a building can be demolished or sold may be an asset retirement obligation, if the removal cost is estimable and material. An asset retirement obligation cost is estimated at fair value, unlike a loss contingency cost, which is estimated at current value under FAS 5 and FIN 14.

American Institute of Certified Public Accountants or AICPA—a U.S. professional organization for certified public accountants that develops accounting standards.

ASTM International or ASTM—originally known as the American Society for Testing and Materials, develops technical standards for use voluntarily worldwide.

Conditional asset retirement obligation or CARO—an asset retirement obligation in which the timing or method of settlement are conditional on a future event that the company may not be able to control, as clarified in FIN 47.

Disclosure controls and procedures—management of disclosure to be current, comprehensive, and accurate, which must be certified by a company's principle executive or financial officer, as required under Item 307 of SEC Regulation S-K.

Estimable (estimate, estimated)—Under FAS 5, a loss contingency that is probable and for which an estimate of cost can be made—is estimable—and is material must be recognized and reported. Under FIN 14, if a cost range can be estimated then either the best value in that range or, if there is no best value, the minimum value must be disclosed. Under FAS 143, an asset retirement obligation for which cost is estimable and material must be recognized and reported. Under FIN 47, a conditional asset retirement obligation for which cost is estimable and material also must be recognized and reported.

Fair value—the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Material asset retirement obligations, including conditional asset retirement obligations, are to be accrued and reported at fair value, as instructed in FAS 143. The determination of fair value is described in detail in FAS 157.

FAS—abbreviation for a Statement, or standard, released by the Financial Accounting Standards Board, e.g., FAS 143.

FIN—abbreviation for the Interpretation of a Statement released by the Financial Accounting Standards Board, e.g., FIN 47.

Financial Accounting Standards Board or FASB—develops and releases standards and guidance (e.g., Statements, Interpretations, Concepts, Technical Bulletins) that are accepted by the SEC as qualified under GAAP.

Financial statement, financial report—representation by a company of its financial performance, typically over a year, and its financial condition, both current and future, including identification of what can affect cash flow; annually using SEC Form 10-K, quarterly using Form 10-Q, and periodically in response to material events using Form 8-K.

GAAP—acronym for "generally accepted accounting principles." The primary sources of GAAP for environmental disclosure purposes are standards and guidance (e.g., Statements, Interpretations, Concepts, Technical Bulletins) from FASB. Secondary sources include technical standards from ASTM and accounting standards from the American Institute of Certified Public Accountants (AICPA).

Internal control—refers to internal control over financial reporting so that it is current, comprehensive, and accurate. It requires statements on responsibility, evaluation, and effectiveness from company management, according to Item 308 of SEC Regulation S-K, and an attestation on the assessment from the company's registered public accounting firm

Known trends—refers to a company's evaluation and recognition of developments that materially affect its business, in particular, in response to requirements in Item 303 of SEC Regulation S-K for the Management's Discussion and Analysis. A company's decision on whether climate change, or global warming, constitutes a known trend currently is highly relevant.

Liability—a probable future sacrifice of economic benefits arising from a present obligation, from CON 6. A liability is a present responsibility and is an obligation to one or more other entities.

A liability has three essential characteristics, as depicted in CON 6, which are a duty for a future transfer (or use) of assets at a time that can be determined, its obligatory nature, and the fact that the transaction creating the obligation already has occurred.

On a company's balance sheet, assets equal liabilities plus worth. So if a liability is added to the right side of the equation, the value of the left side also must be increased, i.e., an equivalent addition must be made to the asset value.

Loss contingency—a contingent liability, asset loss, or asset impairment that requires a future event to resolve uncertainty that it will be incurred.

For example, under FAS 5 and FIN 14, the need to remediate contamination from a former spill may be a loss contingency, if it is probable, estimable, and material. Under FAS 5 and FIN 14, a loss contingency cost is estimated at historic value, unlike an asset retirement obligation cost, which is estimated at fair value under FAS 143 and FIN 47.

Effective beginning in fiscal year 2009, however, loss contingencies for acquired properties also are measured at fair value by the surviving entity in acquisitions and mergers, under FAS 141R.

Material (materially, materiality)—material is the status of a financial item being relevant to a reasonable person or investor. There is no criterion with a constant value for materiality. What is material differs among companies of different size and nature, and it varies within a company when financial conditions vary. Application of a numerical threshold value, e.g., less than five percent of income or assets, may be an initial step in assessing materiality, but cannot substitute for a full analysis of all considerations that are relevant.

Management's Discussion and Analysis or MD&A—the discussion and analysis to be provided in disclosure to the SEC from a company's top level, i.e, management, on its operation and financial conditions, as required in Item 303 of SEC Regulation S-K, including the recognition of known trends or uncertainties that materially may affect the company's business in the future.

Probable (probability)—Under FAS 5, a loss contingency that is estimable, material, and likely to occur in the future—probable— must be recognized and reported. Under FAS 143, probability is not part of the decision whether to recognize an asset retirement obligation; instead, it is factored into estimation of its cost.

Recognize (recognized, recognition)—to record on company books, i.e., accounting records. Synonymous with accrue.

For example, under FAS 143, an asset retirement obligation is recognized (recorded) on the company balance sheet as a liability and an offsetting increase is made in the amount carried as the value of the associated asset.

Report (reported)—to disclose information, annually to the SEC using Form 10-K, quarterly using Form 10-Q, and periodically in response to material events using Form 8-K.

Sarbanes-Oxley Act—legislation enacted in 2002, in large measure in response to massive financial failures at Enron, Global Crossing, and WorldCom, bringing about significant modifications in governance and securities regulation. This Act, also called Sarbox or SOX, affects the roughly 13,000 companies required to register with the SEC, i.e., those required regularly to report—disclose—information about their businesses in financial statements to the SEC.

U.S. Securities and Exchange Commission or SEC—the federal agency that has responsibility for implementing regulations, and their enforcement, that pertain to corporate financial disclosure, including on environmental matters.

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