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TOWN OF BRIDGEWATER
Asset Retirement Obligation Policy
Policy No.114
Approved: September 11, 2023
Resolution: 23-179
Policy Statement
The Town of Bridgewater shall account for and report on asset retirement obligations
(ARO) in compliance with the Public Sector Accounting Board (PSAB) Handbook,
section 3280 with an effective date of April 1, 2022.
Purpose
The objective of this Policy is to stipulate the accounting treatment for asset retirement
obligations (ARO) so that users of the financial report can discern information about
these assets, and their end of life obligations. The principal issues in accounting for
ARO's is the recognition and measurement of these obligations.
Application
This Policy applies to all departments, branches, boards and agencies falling within the
reporting entity of the Town of Bridgewater, excluding the Public Service Commission of
Bridgewater, that possess asset retirement obligations including:
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Assets with legal title held by the Town
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Assets controlled by the Town
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Assets that have not been capitalized or recorded as a tangible capital asset for
financial statement purposes
Existing laws and regulations require public sector entities to take specific actions to
retire certain tangible capital assets at the end of their useful lives. This includes
activities such as removal of asbestos, lead paint and retirement of landfills. Other
obligations to retire tangible capital assets may arise from contracts or court
judgments, or lease arrangements.
The legal obligation, including obligations created by promises made without formal
consideration, associated with retirement of tangible capital assets controlled by the
Town, will be recognized as liability in the books of the Town of Bridgewater, in
accordance with PS3280 which the Town will be adopting starting April 1, 2022.
Asset retirement obligations result from acquisition, construction, development or
normal use of the asset. These obligations are predictable, likely to occur and
unavoidable. Asset retirement obligations are separate and distinct from
contaminated site liabilities. The liability for contaminated sites is normally resulting
from unexpected contamination exceeding the environmental standards. Asset
retirement obligations are not necessarily associated with contamination.
Policy Requirements
A. Recognition
A liability should be recognized when, as at the financial reporting date:
there is a legal obligation to incur retirement costs in relation to a tangible
capital asset;
the past transaction or event giving rise to the liability has occurred;
it is expected that future economic benefits will be given up; and
a reasonable estimate of the amount can be made.
A liability for an asset retirement obligation cannot be recognized unless all of the
criteria above are satisfied.
The estimate of the liability would be based on requirements in existing agreements,
contracts, legislation or legally enforceable obligations, and technology expected to
be used in asset retirement activities.
The estimate of a liability should include costs directly attributable to asset retirement
activities. Costs would include post-retirement operation, maintenance and
monitoring that are an integral part of the retirement of the tangible capital asset.
Directly attributable costs would include, but are not limited to, payroll and benefits,
equipment and facilities, materials, legal and other professional fees, and overhead
costs directly attributable to the asset retirement activity.
Upon initial recognition of a liability for an asset retirement obligation, the Town will
recognize an asset retirement cost by increasing the carrying amount of the related
tangible capital asset (or a component thereof) by the same amount as the liability.
Where the obligation relates to an asset which is no longer in service, and not
providing economic benefit, or to an item not recorded by the Town as an asset, the
obligation is expensed upon recognition.
The capitalization thresholds applicable to the different asset categories will also be
applied to the asset retirement obligations to be recognized within each of those asset
categories.
B. Subsequent Measurement
The asset retirement costs will be allocated to accretion expense in a rational and
systemic manner (straight-line method) over the useful life of the tangible capital
asset or a component of the asset.
On an annual basis, the existing asset retirement obligations will be assessed for any
changes in expected cost, term to retirement, or any other changes that may impact
the estimated obligation. In addition, any new obligations identified will also be
assessed.
C. Presentation and Disclosure
The liability for asset retirement obligations will be disclosed.
Responsibilities
Departments
Departments are required to:
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Communicate with Finance on retirement obligations, and any changes in asset
condition or retirement timelines.
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Assist in the preparation of cost estimates for retirement obligations.
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Inform Finance of any legal or contractual obligations at inception of any such
obligation.
Finance
Finance is responsible for the development of and adherence to policies for the
accounting and reporting of asset retirement obligations in accordance with Public Sector
Accounting Board section 3280. This includes responsibility for:
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Reporting asset retirement obligations in the financial statements of the Town
and other statutory financial documents
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Monitoring the application of this Policy
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Managing processes within the TCA accounting module
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Investigating issues and working with asset owners to resolve issues.
Legislative and Administrative Authorities
Public Sector Accounting Board, Public Sector Handbook, Section PS 3280 Asset
Retirement Obligations
Definitions
Accretion expense is the increase in the carrying amount of a liability for asset retirement
obligations due to the passage of time.
Asset retirement activities include all activities related to an asset retirement obligation.
These may include, but are not limited to:
decommissioning or dismantling a tangible capital asset that was acquired,
constructed, developed, or leased;
remediation of contamination of a tangible capital asset created by its normal
use;
post-retirement activities such as monitoring; and
constructing other tangible capital assets to perform post-retirement activities.
Asset retirement cost is the estimated amount required to retire a tangible capital asset.
Asset retirement obligation is a legal obligation associated with the retirement of a
tangible capital asset.
Retirement of a tangible capital asset is the permanent removal of a tangible capital
asset from service. This term encompasses sale, abandonment or disposal in some other
manner but not its temporary idling.
Appendix A
Decision tree - Scope of applicability