Consulting for Asset Retirement Obligations

Contact HAMADA with your questions regarding asset retirement obligations

Did you know that from April 2014 asset retirement obligation became part of corporate accounting principles?
For those unfamiliar with accounting, the idea of "accounting principles" may seem a foreign concept. However, this administrative issue transcends departments and is common to all companies. According to the prevailing trend of the International Financial Reporting Standards (IFRS), more administrative transparency will be demanded of companies in the near future. For those considering the early implementation of these measures, HAMADA can provide you with the consulting services you need.

What is "asset retirement obligation"?
Asset retirement obligations provide for costs related to the future disposal of assets. When companies buy any tangible fixed asset, such as buildings, real estate or equipment, they have to calculate the expected cost necessary for the disposal of said asset (demolition, sale, recycling, etc.), and list it in their balance sheet as a liability. Over the lifetime of the asset, it is necessary to reflect this cost in the company's financial statement as a depreciation expense for their profit-and-loss statement.
In the case of work related to the environment, for example, demolition costs include treatment fees for asbestos, dioxin, PCB, soil contamination and other substances stipulated by law. For real estate, the cost includes demolition, which must be carried out to return a site to its original condition. Costs for environment restoration must be clearly listed in the balance sheet as liabilities.
Who are asset retirement obligations for?
Listed companies, non-listed companies capitalized at 0.5 billion yen or more, and stock companies with more than 20 billion yen in liabilities.
(As of April, 2011)
What HAMADA can do: Estimation and Management Support for Assets Subject to Asset Retirement Obligations
We help enterprises clarify whether their assets are or will be subject to asset retirement obligations. We make estimates for dismantlement, recycling, etc. and infer the necessary future costs of these and reflect this in the statement of accounts.
  • ■ A Selection of Operations Subject to ARO

    ・ Asbestos removal
    ・ Building repair and demolition
    ・ PCB treatment
    ・ Soil contamination inspection and treatment

  • ■ Support Services for Asset Retirement Obligations

    ・ Estimate optimization
    ・ Re-evaluation of calculated costs
    ・ Estimate write-up with itemized statement
    ・ Support in selling for asset retirement
    ・ Asset management support

  • ■ List of Current Issues

    "We know that many companies have already dealt with their level 1 asbestos (sprayed asbestos), but a lot of companies still have no idea how much level 2 (scattered asbestos for pipe insulation) or level 3 (non-scattered asbestos for factory slate roofing) asbestos is in their factories; nor do they know the cost associated with removing this. Regardless of whether this needs to be reflected in the company's financial statement, it is still necessary to get an idea of the cost for its removal. The same is true in regards to storage and removal costs for PCB, contaminated soil, etc."

What about future trends and strategies?
According to the prevailing trend of the International Financial Reporting Standards (IFRS), more administrative transparency will be demanded of companies in the near future.
Therefore, it is best to work at preparing for and complying with the International Financial Reporting Standards at an early stage. It is expected that CO2 emissions in excess of those currently allowed will become subject to these standards as well.
■ Reference links

Asset retirement obligations became a part of domestic accounting principles at the start of the fiscal year in April, 2010.
The following is a link to ASBJ (Accounting Standards Board of Japan)

Feel free to contact us or request materials

Zero-Emission Recycling HAMADA Co., Ltd.