ASTM E2173 - 16

    Standard Guide for Disclosure of Environmental Liabilities

    Active Standard ASTM E2173 | Developed by Subcommittee: E50.05

    Book of Standards Volume: 11.05


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    Significance and Use

    4.1 Significance—Since the release of FASB Statement 5—Accounting for Contingencies—in March 1975, the regulatory complexity around environmental matters has increased due to a variety of long-term trends and factors, including but not limited to:

    4.1.1 Number and scope of federal, state, local, and non-U.S. environmental and financial reporting laws and their implementing regulations;

    4.1.2 Number and scope of treaties signed by the United States, as well as the implementing laws and regulations; parties in these treaties include multilateral organizations and Native American tribes;

    4.1.3 Judicial decisions clarifying the impact of laws, regulations, and treaties;

    4.1.4 Costs to comply with environmental regulations;

    4.1.5 Number of known chemical compounds (see Chemical Abstracts Service REGISTRYSM, which contains over 113 million unique organic and inorganic substances);

    4.1.6 Knowledge about benefits and effects of chemical compounds on human health, ecological receptors, and the environment, such as toxicology studies (see National Library of Medicine's TOXNET database at www.nlm.nih.gov);

    4.1.7 Number and efficacy of remedial technologies;

    4.1.8 Experience with assessing and remediating environmental conditions;

    4.1.9 Financial impact of counterparty failure; and

    4.1.10 Investor interest in the impact of these trends and factors on their investments.

    4.2 Concurrently, the issuers of generally accepted accounting principles (GAAP) and financial reporting standards have been evolving. While the Securities and Exchange Commission (SEC) was established in 1934, FASB was created in 1973, GASB in 1984, FASAB in 1990, and IASB in 2001. As part of Sarbanes-Oxley Act of 2002 (Public Law 107–204, 116 Stat. 745), PCAOB was founded in 2002.

    Note 1: Many of these trends and factors, as well as the changes to GAAP, have occurred slowly. For example, users of this guide will likely be aware that chemicals that were not regulated or considered contamination yesterday may be deemed so tomorrow.

    4.3 Uses—This guide is intended for use on a voluntary basis by a reporting entity that provides financial and qualitative disclosure regarding environmental liabilities. Disclosure is integrated with preceding elements of financial statements, namely recognition, measurement, and presentation of environmental liabilities, as noted in Fig. 1. (Full explanation of this framework can be found in FASB Concepts Statement 8, September 2010.)

    4.3.1 The degree and type of disclosure depends on the scope and objective of the financial statements. Such statements may not always be audited and prepared for the public domain.

    4.3.2 For example, users may need to make non-public disclosures for the benefit of investors, lenders, regulators, tax authorities, key customers and joint venture partners.

    4.3.3 Users of this guide should be aware that shareholder concerns, contractual obligations, financial assurance requirements, court decisions, and regulatory directives may affect their flexibility in use of this guide.

    4.4 Principles: 

    4.4.1 The following principles are an integral part of this guide and are intended to be referred to in resolving any ambiguity or dispute regarding the interpretation of disclosures regarding environmental liabilities.

    4.4.2 Uncertainty Not Eliminated—Although a reporting entity, as of the time when its financial statements are prepared, may hold a certain position with regard to the existence and extent of its environmental liabilities, there remains uncertainty with regard to the final resolution of factual, technological, regulatory, legislative, and judicial matters, which could affect its valuation of environmental liabilities. Under the constraints of preparation cost and materiality (noted in FIG 1), users needing reliable information may experience additional limitations, such as unaudited cost projections, draft scientific findings, or the bounds of attorney-client privilege. Users may encounter decisions identified as uncertainties and observe liabilities priced solely through the costs to implement potential remedial strategies; information on cognitive biases in valuing environmental costs and liabilities may be found in Guide E2137.

    4.4.3 Disclosure Dependent on Circumstances—Not every environmental liability warrants the same level of detail in its disclosure. Disclosure will be guided by the scope and objective of the financial statement, and accordingly, by the materiality of the environmental liability and the level of information available.

    4.4.4 Comparison with Subsequent Disclosures—Subsequent disclosures that convey different information regarding the extent or magnitude of the reporting entity's exposures should not be construed as indicating the initial disclosures were inappropriate or incorrect. Disclosures shall be evaluated on the reasonableness of judgments and inquiries made at the time and under the circumstances in which they were made. Subsequent disclosures should not be considered valid standards to judge the appropriateness of any prior disclosure based on hindsight, new information, use of developing analytical techniques, or other factors. However, information on trends may be of value to a user of financial statements.

    4.4.5 Not Exhaustive—Appropriate disclosure does not necessarily mean an exhaustive disclosure; discretion and professional judgment is used by estimators, auditors, and the reporting entity's management in setting limits on the preparation cost, materiality, and volume of information worth disclosing as environmental liabilities.

    Note 2: For each entity, there is a tradeoff between displaying detailed information and identifying reliable and accurate insights that are useful to user decisions.

    4.4.6 Assessment of Risk—As the reporting entity becomes aware of an environmental liability, the condition or issue should be evaluated to assess the actual or potential risk to human health and environment and resources. The degree of risk is evaluated in context of the current regulatory environment, an understanding of the specifics of the condition or issue, potential future uses, and asset retirement obligations.

    4.4.7 Improved Capital Stewardship—Disclosure, along with the preceding steps of recognition, measurement, and presentation, provides context for environmental liabilities and may improve the defensible allocation of capital to resolving those liabilities as efficiently as possible. Over time, an entity may find it valuable or even essential to demonstrate leadership in cost efficiency for understanding, controlling, preventing, and reducing environmental liabilities. The need for intermittent internal presentations may transform into the need for regular public disclosures as an entity acquires environmentally impaired assets or other environmental liabilities. An entity may prefer to make the ongoing investment in competent and continuous data collection and interpretation to draw internal managerial attention toward measuring and ensuring progress in discharging the liabilities as efficiently as possible.

    1. Scope

    1.1 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 other issuers of accounting standards and practices, including International Accounting Standards Board (IASB).

    1.2 Objectives—The objectives of this guide are to determine the conditions warranting disclosure and the content of appropriate disclosure.


    2. Referenced Documents (purchase separately) The documents listed below are referenced within the subject standard but are not provided as part of the standard.

    ASTM Standards

    D5746 Classification of Environmental Condition of Property Area Types for Defense Base Closure and Realignment Facilities

    E1527 Practice for Environmental Site Assessments: Phase I Environmental Site Assessment Process

    E1739 Guide for Risk-Based Corrective Action Applied at Petroleum Release Sites

    E2137 Guide for Estimating Monetary Costs and Liabilities for Environmental Matters

    EPA Directives

    United States Environmental Protection Agency, OSW Use of Risk-Based Decision-Making in UST Corrective Action Programs


    ICS Code

    ICS Number Code 13.020.10 (Environmental management)

    UNSPSC Code

    UNSPSC Code 77101800(Environmental auditing)


    Referencing This Standard
    Link Here
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    DOI: 10.1520/E2173-16

    ASTM International is a member of CrossRef.

    Citation Format

    ASTM E2173-16, Standard Guide for Disclosure of Environmental Liabilities, ASTM International, West Conshohocken, PA, 2016, www.astm.org

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