scope:

Purpose-The purpose of this guide is to provide a series of options or instructions consistent with good commercial and customary practice in the United States for environmental liability disclosures accompanying audited and unaudited financial statements. This guide is consistent with Generally Accepted Accounting Principles (GAAP)² issued by Financial Accounting Standards Board (FASB), as well as related statements, rules, regulations, and/or procedures issued by Government Accounting Standards Board (GASB), Public Company Accounting Oversight Board (PCAOB), Securities and Exchange Commission (SEC), and Federal Accounting Standards Advisory Board (FASAB). This guide is intended to be consistent with national and multinational issuers of accounting standards and practices, including International Accounting Standards Board (IASB).

Objectives-The objectives of this guide are to:

Identify the common terminology used in environmental disclosures,

Explain the need for environmental disclosures,

Define the conditions warranting disclosure, and

Illustrate the report formats and content typically used in environmental disclosures.

History of development of this guide-In 1993-1994, a group of insurance companies approached ASTM to request a best practice environmental cost estimation and disclosure standard, as they were experiencing high environmental remediation and asbestos claims from policyholders that were reporting no material liabilities in their annual reports. At the same time, asbestos and environmental liabilities were triggering bankruptcy more frequently, again with little prior disclosure by companies other than boilerplate legal language that costs were too uncertain or not estimable, or that such costs would not be material. Research by the ASTM standard working committee at the time found such shortcomings as (a) rarely attempting to identify a full portfolio of potential liabilities, (b) dividing liabilities into separate sites or claims to avoid aggregated material outcomes that would require disclosure, and (c) relying on "known minimum costs" or "no estimate" to forecast liabilities. This disclosure standard (E2173), initially developed over a seven-year period with its first approval in 2001, was created to cure these shortcomings by providing guidance for best practice disclosure, including aggregation of liabilities before conducting a materiality test, as well as disclosure of the major assumptions and evaluations underlying the disclosure. The companion referenced cost estimation standard (E2137, which was split into a separate standard due to its broader applicability beyond disclosure purposes) provided guidance on a hierarchy of cost estimation methodologies that explicitly address uncertainty and recommend alternative methodologies. Both E2137 and E2173 have been revised over time to reference and incorporate applicable elements of new accounting standards and regulations, consider applicable case law, and incorporate new best-practice examples and years of additional experience with cost estimation and disclosure.

This international standard was developed in accordance with internationally recognized principles on standardization established in the Decision on Principles for the Development of International Standards, Guides and Recommendations issued by the World Trade Organization Technical Barriers to Trade (TBT) Committee.

² This guide alone does not satisfy or include all disclosure requirements under GAAP, SEC, IASB, or any other agency or regulatory body. Appendix X1 provides some examples of where such requirements are contained.