How is an asset retirement obligation measured?
Under U.S. GAAP, the initial liability is recorded at the estimated fair value to remediate the liability. If the expected cash flow approach is used to estimate the fair value of the ARO, the company must use a credit-adjusted, risk-free rate.
Under IFRS, the initial measurement is based on management’s estimate to remediate the liability. A pre-tax discount rate that reflects the current assessment of the risks specific to the liability is used to discount the liability.
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