Policy 1017: Accounting for Conditional Asset Retirement Obligations

Subject Area: Accounting
Responsible Office: Financial Services
Sponsor: Associate Vice President for Finance
Originally Issued: July 2006
Revised: January 2010
Refer Questions To: Claire Mueller, 773-702-3753

Purpose: To document the initial recording of conditional asset retirement obligations associated with University assets and establish policy for on-going accounting treatment.

Background: The Financial Accounting Standards Board requires entities to record liabilities for long-lived assets that must be retired in a specific way as required by law or contract. This regulation was written to address the eventual removal of hazardous materials such as asbestos. The basis for this guidance was established through FAS 143, issued in June 2001 and FIN 47, issued in March of 2005.

A series of asbestos surveys and assessments related to asbestos removal were made in 1999 and 2000 for all University buildings and real estate holdings. These surveys were used to establish the initial FIN 47 liability.

Implementation of Conditional Asset Retirement Obligation Guidance

  1. Asbestos surveys and assessments were made in 1999 for all University buildings and real estate holdings. This information was used to estimate the asbestos removal cost liability as of June 30, 2005.
  2. Actual abatement costs have tended to be less than the original estimates made in 1999. Because of this, the 1999 estimates were not inflation adjusted when calculating an estimated liability at June 30, 2005.
  3. A number of federal, state, and local regulations affecting the use and removal of asbestos have been issued since 1971.
  4. Consistent with the depreciation policy for non-componetized renovation projects, the asset retirement obligation asset amortization period is 25 years which results in a full amortization of the initial asset retirement obligation asset as of June 30, 2005. As a result, the initial asset retirement obligation liability was recorded as a reduction of beginning unrestricted net assets.


The need for an inflation adjustment of the asset retirement obligation liability will be considered each fiscal year. If considered appropriate, inflationary increases in the liability will be charged as an operating expense.