Regulation

ICAS calls for transparency in decommissioning costs 

The Institute of Chartered Accountants of Scotland (ICAS) has called for higher transparency in the presentation of the cost of decommissioning and clean-up.

The institute said that the “ambiguity” surrounding IAS 37 may be “handing the cost of long-term liabilities of pollution-prone industries to the public”.

It comes as ICAS published its latest paper, ‘Black box accounting: Discounting and disclosure practices of decommissioning liabilities’, which examines how international accounting standards are applied to sustainability reporting.

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It explained that when a company acquires certain types of long-term assets, it incurs an obligation to remove the assets, and clean-up and restore the site. However, ICAS said a “critical” issue emerges if the company becomes insolvent.

The group explained that the clean-up liability remains attached to the asset, which may therefore become “less attractive” to a potential buyer. If the asset remains unsold, taxpayers may “end up picking up the cost of decommissioning”.

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Marie Gardner, ICAS head of research, said: “There has been an increased focus on sustainability reporting for companies over the past few years, both from investors and society.

“Our research examines whether existing accounting standards (IAS 37) are adequate in helping organisations become more transparent when presenting the costs of decommissioning and clean-up operations in pollution-prone industries.”

She added: “The research considered whether accounting according to IAS 37 is designed and applied in the best interests of not only investors and creditors but also the general public.

“The research used a large international sample across the mining, utilities, and oil and gas sectors, and found substantial variations exist in companies’ choice to disclose the discount rate when accounting for decommissioning and environmental liabilities.”

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