Abstract This article presents the response of the Financial Accounting Standards Committee of the American Accounting Association to the U.S. Financial Accounting Standards Board's exposure draft (ED), Proposed Statement of Financial Accounting Standards--Accounting for Certain Liabilities Related to the Closure or Removal of Long-Lived Assets. The ED requires that a liability be recognized for certain closure or removal obligations related to long-lived assets as those obligations are incurred. The Committee agrees in principle with this requirement, which seeks to eliminate differences that exist in practice regarding closure and removal obligations. The requirement is conceptually sound in that it is consistent with the definition of a liability set forth in Statement of Financial Accounting Concepts No. 6, and it is generally consistent with other reporting standards. With respect to scope, the ED adopts the approach of providing three essential characteristics in paragraph 4 and examples of obligations in paragraph 6 that are considered to be within the scope of the proposed statement. One of the committee's primary concerns relates to potential difficulties with interpretation of these characteristics and the resulting effects on implementation of the proposed standard.
Warfield et al. (Sun,) studied this question.