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AROs Graphic updated
May 8, 2022

Have you put a cost to your environmental liabilities?

New accounting rules around asset retirement obligations for the Public Sector are now in effect.

Scope of Changes

In August 2018, the Public Sector Accounting Board (PSAB) issued Section PS 3280, Asset Retirement Obligations (ARO).  The standard is intended to provide guidance on how to account for a liability that represents an ARO.  PS 3280 applies to all public sector entities that follow Public Sector Accounting Standards (PSAS).  The new rule will have an impact on public sector entities including all levels of government and educational institutions as implementation of the new standard is mandatory.  PS 3280 was initially set to apply to fiscal years beginning on or after April 1, 2021, with earlier adoption permitted.  In 2020, due to COVID-related challenges, the implementation date was delayed by one year to April 1, 2022. 

AROs arise when there is a legal obligation at the time of retirement of tangible capital assets.  The scope of PS 3280 outlines guidance on obligations to retire tangible capital assets of a public sector entity that are predictable and unavoidable.  It also provides guidance on what variables to consider when initially measuring an ARO, including which costs to include (Decommissioning, dismantling and remediation) and existing laws, regulations and contractual agreements that may be in place. 

Public sector assets likely to have an associated retirement obligations could include owned buildings, leased properties, docks, landfills, pump stations, reservoirs, treatment plans, park infrastructure, and radio towers.  Common AROs that need to be addressed include removal of asbestos, underground fuel tanks and wells. 


It is anticipated that financial and accounting professionals, in conjunction with consultants who have expert knowledge of this form of valuation can assist with the implementation of the new standard.  Determining the amount of AROs as soon as possible is fundamental to the process.  Some items may be relatively easy to value, while others will require more effort.   Determining the cost of asbestos abatement, for example, could require details on the asbestos-containing materials present at a location.  In most provinces, including Ontario, an asbestos survey should exist for every building that contains asbestos.  These surveys may or may not include quantities of materials which would be helpful in determining asbestos abatement costs. 

Costs should be determined initially as part of the process in the initial reporting year, with appropriate changes over time as deemed to be appropriate in each successive reporting year.  It should be noted that in some cases, the settlement date for an asset retirement obligation may not be known.  However, uncertainty about the timing and amount of the cost does not remove the obligation to report. The difference will be adjusted accordingly in each successive year.

This communication summary contains a general overview of the topic gathered from various sources and is meant to make the reader aware of the new accounting standard.  This information is not a substitute for professional advice, and no decisions should be made based on the material presented herein.  We recommend that any decisions regarding the new accounting standard be made in consultation with a qualified professional.

Prepared by Angeline Snow, Project Manager, and Anita Ardekani, Chief Strategy Officer, with input from Christopher Nielsen, Vice President, T. Harris Environmental Management Inc.

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