© 2013 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of...

© 2013 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. KPMG CONFIDENTIAL.

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PS 3260 Liability for contaminated sites

PS 3270 Solid waste landfill closure and post-closure liability Yukon Government

Workshop in Whitehorse

November 14, 2013


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With You Today

Peter GreenwoodPartner KPMG [email protected](604) 691 3187

KPMG’s Public Sector Accounting Advisory lead• Technical Advice for Complex Accounting Issues• Accounting Transaction Support• Accounting Standard Changes (e.g. PSAB -Financial Instruments,

Contaminated Sites, Government Transfers etc)• Framework Transition • Project management• Structural Change Assistance (e.g. carve-outs or reorganizations)• Financial Reporting Process Review

Keystone Environmental• Specialize in site contamination investigation, remediation and risk

assessment • Industrial wastewater and storm-water• Assists clients in negotiations with local, provincial and federal

regulators and approving agencies, • Conducts public information meetings • Provides expert and second opinion services

Introductions

Bill Donald M.Sc., P.Eng., President Keystone Environmental(604) [email protected]


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Agenda for the workshop today PS3260 Contaminated Sites

Time Who Description8:30 am(15 mins)

Michael Riseborough

Introduction of presenters and participants

8:45 am(15 mins)

Peter Greenwood & Bill Donald

Introductions – People & Topic• Why is the forthcoming contaminated sites standard causing stress among the audience? • Allow participants to voice issues they have heard or would like the presenters to cover. Allows

presenters to cover specific issues through the day

9:00 am(50 mins)

Peter Basics of PS3260: Run through the fundamentals of the standard• Scope - what is in and out of the standard• Recognition – criteria to be applied for each site in order to recognize contamination• Measurement – how to approach the liability estimate• Disclosure – key requirements for information gathering

9:50 am Break (10 mins)

10:00 am(30 mins)

Peter Practical steps to consider for your organization: • How to raise the profile of the PS3260 project (e.g. to attract sufficient budget, how to deal with

approach to Risk etc)• Experience from KPMG clients looking at the project what does that look like from the

municipality point of view?

10:30 am(90 mins)

Bill • Regulatory Perspectives – Regulatory background and setting the environmental standards in Yukon.

• Role of the Environmental Engineering - What does it mean to bring in an environmental engineer to a project?

12:00 pm Lunch (60 mins)


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Agenda for the workshop today PS3260 Contaminated Sites

Time Who Description1:00 pm (30 mins)

Peter Contaminated Sites – Audit considerations

1:30 pm(15 mins)

Peter PS3260 wrap up and questions

1:45 pm Break (10 mins)

1:55 pm50 mins

Peter Review the basics of the PS3270 Landfill standard itself – what are the key issues to understand regarding;• Scope – critical to understand what is in and out of the standard and the definitions behind reporting for

landfills• Recognition – how to recognize the liability for closure and post-closure care• Measurement – how to approach the liability estimate• Disclosure – key requirements for information gathering

3:00 Peter/Bill Wrap-up of issues. Circle back to topics raised in first session of the day.• Issues of PS3260 and PS3270 – make sure we circle back to the first session of the day on audience

topics of concern• Logistics around the projects themselves• Any next steps across the group (e.g. potential for share forum to be established among participants)• Any other common topics that the group would appreciate feedback from presenters on• Seek feedback from the group on the day

3:30 pm Close

Introduction to PS3260:

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Introduction session

• Why is the forthcoming contaminated sites standard causing stress?

• Opportunity for participants

• Voice issues you have heard

• Raise issues you would like the presenters to cover

• Allows presenters to circle back on specific issues through the day

Understand the basics of PS 3260 Contaminated Sites standard

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Basics of the standard – who is affected

• Wide reaching:

• Applies to all governments and government organizations who apply CICA

Public Sector Accounting Handbook.

• Will impact governments, and also universities, school boards, and hospitals

reporting under the PSA standards.

• PS3260 provides guidance on applying the existing definitions of a liability in the

PSA Handbook.

• It does not redefine the definitions or principles specified in FINANCIAL

STATEMENT CONCEPTS, Section PS 1000, and the general recognition and

disclosure standards in LIABILITIES, Section PS 3200.


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Basics of the standard - timeline

Mar 31, 2014

Mar 31, 2015

Fiscal year periods

PS3260Comparative

figures Opening Balance Sheet

Year end 2015 may feel like a long time away but … it’s closer than you think!

First public

reportingunder

PS 3260

Mar 31, 2012

Mar 31, 2013

Go-live reporting

Today

Adoption date

• Periods beginning on or after April 1, 2014

• Early adoption is encouraged


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Scope of PS 3260 standard (PS3260.01 - .07)

Definition of contamination

For the purposes of PS3260 and per PS3260.04;

• Contamination is

“the introduction into air, soil, water or sediment of a chemical, organic or radioactive material or live organism that exceeds an environmental standard.”

• A contaminated site is

“a site at which substances occur in concentrations that exceed the maximum acceptable amounts under an environmental standard.”

• A contaminated site does not include

“airborne contamination or contaminants in the earth's atmosphere unless such contaminants have been introduced into soil, water bodies or sediment.”


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Scope defines contamination

Contamination is therefore NOT

• Costs for betterments of capital assets, or post remediation fair value; asset retirement obligations; or liabilities for closure and post-closure care of a solid waste landfill site

• What about asbestos? Out of scope of PS3260, re definition of site contamination, but

Falls under the scope of PS3200.

A liability would only occur if ‘the settlement of the past transaction or event is expected to result in the future sacrifice of economic benefits’. Therefore,

Asbestos becomes a liability under PS3200 when the trigger point requiring sacrifice of economic benefit happens.

If you have no responsibility to remediate a property that contains asbestos (i.e. you could simply leave the property as is with no plans for remediation), there is a $nil liability under PS3200.


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Scope of PS 3260 standard

Scope

• PS3260.05 outlines that properties should be differentiated between productive sites and

those sites ‘not in productive use’ – example is “abandoned gas station”,

• Change to environmental standard for sites no longer in productive use = in scope

• If site has part of operation not in productive use = in scope

• Contamination from ‘an unexpected event’ = in scope

Municipality needs to review periodically what this means.

• Active/Productive sites - PSAB confirmation that these are not in the scope of PS3260

• Sites not in productive use;

Municipality needs to define what this means (e.g. are parks ‘productive’ or not?)

All or ‘part of an operation’ may no longer be in productive use


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Inventory of all properties and sites

Is the site productive or not?

In productive use Not in productive useNon productive

Is a part of site no longer in productive

use?Yes

Allocate site to productive and non-

productive parts

Review for contamination (see

Appendix A of PS 3260

ProductiveNo

Has an unexpected event occurred?

Yes

NoMight the unexpected

event resulted in contamination?

Yes

No

Has the entity defined its accounting policy for decommisioning

liabilities?

No Yes

Is there a liability under PS3200 Liabilities

Yes

YesNo

Do nothingRecognise liability (e.g. for decomissioning of

assets)

Scope of PS 3260 standard – flow chart


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Basics of the standard – recognition (PS3260.08)

Recognition Criteria – all the following must apply;

1. An environmental standard exists

2. Contamination exceeds the environmental standards

3. The government is directly responsible or accepts responsibility

4. It is expected that future economic benefits will be given up

5. Reasonable estimate of the amount can be made


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Direct• By past government activities• Activities on government-owned land and the responsible party lacks the means to

remediate • Legal obligations to remediate set by contracts and legislations

Accepting responsibility• Constructive obligations may create liabilities based on interpretation• Internal and external policies and past practice may establish expectation• Whether government has discretion to alter policies

Have you created valid expectation to remediate sites? This may include;• Government committed to remediation plan• Identified location of contamination• Communication to those affected by contamination• Contamination reduction target and time frame identified• Evidence that expectation can be relied on

Basics of the standard – accepting responsibility (PS3260.18)


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Basics of the standard – future economic benefit and uncertainties (PS3260.32-39)

• Liability is created only if loss in future economic benefit is “expected” “Expected”: Reasonably anticipated based on available evidence and logic

• No liability if loss in future economic benefit is not expected May require disclosure as contingent liability under PS 3300

• When there is uncertainty about whether or not government has responsibility Treat as a contingent liability


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Basics of the standard – measurement (PS3260.40)

Liability includes ‘best’ estimate (i.e. payment to settle or extinguish the liability):

Estimation on information available at financial statement date• Directly attributable costs (ie. payroll, benefits, legal etc.)• Estimated costs of bringing site back to current minimum standards• Integral cost involving

• post-remediation operations, • maintenance and • monitoring

• Assets acquired to be used completely for remediation purposes are expensed over the life of the liability, assets acquired to be used partially for this purpose are expensed for portions use


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Basics of the standard – disclosure (PS3260.65 - .69)

What will my accounting policy look like?

• Should disclose:a. nature and source of the liability;b. basis for the estimate of the liability (include significant assumptions);c. when a net present value technique is used, the estimated total undiscounted expenditures

and discount rate;d. the reasons for not recognizing a liability (e.g. why a reasonable estimate of the amount

involved cannot be made or why it is not expected that economic benefits will be given up would be disclosed); and

e. the estimated recoveries.

• No mention of process to collect information or transition disclosure but this likely will be included.

• Governments should “consider the usefulness of the information to readers in assessing the nature and extent of a government's liability for remediation of contaminated sites”. Additional disclosures encouraged to enhance the financial statement users' understanding of the estimate of the liability.

• It may be useful to group similar items together. The level of disclosure also considers the sensitivity of the information.

• Anticipated timing of future expenditures would also be disclosed.

• Uncertainties affecting the measurement of a liability

Practical steps for the PS3260 project


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Top ten issues for your PS3260 Project Plan

Key Issues

1. Understand the basics behind the standard – Read it!

2. Raise awareness

3. Project plan

4. Policy before action

5. Risk

6. Inventory of regulations

7. Define site analysis approach - inventory of all sites needed

8. Define measurement approach

9. Role of environmental engineer

10. Role of auditor

Action 2:

Raise awareness throughout your organization


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Action – 2Raise awareness throughout your organization

Mobilize organization for the requirements of the standard

Alert senior management to the potential effect on reported financial results and business operations

Engage all relevant functions in the business – Property, Operations, Procurement, Legal,

Identify and involve the right people – core team, extended resources, project manager, steering group – and ensure they will be available

Secure senior management’s support – essential early

Awareness Design Implement

PS 3260‘business as usual’


Assess

Action 3:

Establish a formal project plan


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Action – 3Establish a formal project plan

Assess impact and plan for standard implementation

Identify inventory of all sites in the organization – not just those potentially contaminated

Understand process of staged review from all sites to key risk sites Do a “gap analysis”– accounting policies, procedures Understand management approach to risk and risk framework Agree on timelines and determine priorities Evaluate reporting requirements Evaluate information and disclosure requirements & any demand on IT

system Develop master conversion plan and resource requirements Conduct training needs assessment

Awareness Design Implement



Assess


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Project planning and governance

• Get this project ‘RIGHT FIRST TIME’

• Dedicated project management is a critical success factor for your project

• Ensure the plan is realistic in terms of timescales and specific accountabilities for all tasks – allow for slippage

• Revisit the plan regularly …or else it will quickly become redundant

• Most significant challenge will be managing a virtual team over an extended time-period and maintaining the momentum of the project

If you start doing work on contamination assessments without a clearly defined plan and approach – you run the risk of missing key aspects of what the project should cover


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Plan in overview

Assess Design Implement

Environmental assurance group

Accounting advisory

Valuation

Risk and compliance

Audit

What are the environmental standards for BC Government sector?

What are internal policies and guidelines?

Has contamination occurred?

Is Government responsible?

Is there a constructive obligation?

Is there a framework for managing risk?

Inventory of potential sites

Valuation assumptions for liability estimate

Who is qualified to opine on contamination?

Audit financial statements

Audit reporting framework

Audit contamination levels

Assess post remediation, maintenance, monitoring estimates

Assist with provision analysis and calculations

Action 4:

‘Policy before action’


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Policy before action

• Get this project ‘RIGHT FIRST TIME’

• Policies over critical issues for contamination;

• ‘Gold-standard’ or a minimalist approach to remediation?

• Accepting responsibility of others on your lands?

• Judgement of how ‘likely’ the provision is?

• Risk analysis management policy?

• Sustainability - how often is this updated?

• Costs of remediation – policy for assets acquired?

• Document policies down – the auditor needs them!

Action 5:

Risk - Develop an approach


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Approach to risk for PS 3260

Risk approach is key - Potentially the crux of the project.

• We will need to inventory (potentially) many sites.

• Framework needed to classify and account for risk - will drive remediation estimates.

• Framework of risk will benchmark each site.

How we do this, who does it, what are the parameters, how often do you update it,

and how do you measure progress over time as you rectify each site?

• What contamination risk we have, what it’s going to take to fix it and when.

E.g. at a basic level risk categories include: cheap and now, cheap and in the

future, expensive and now, expensive but put off to the future etc.

• Effective documentation for our audit also to consider.


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Risk matrix – one approach

0

NCSP Risk Categories

Business Risks Financial Risks

Key

Top Ten Risks Audit Risks

4d Incomplete or inaccurate remedial investigation/site characterization leading to Catastrophic Failure

4e Failure to adequately budget necessary resources to complete remediation plan to closure

5a Failure to meet required cleanup levels to bring sites to closure

5b Low or No acceptance of remediation plan by aboriginal communities

5c Incomplete or inaccurate feasibility assessment of remediation options

1c Failure to detect material error, omission, or misrepresentation in project reports

3j Failure to adequately engage aboriginal communities and related stakeholders

3h Remediation interferes with existing business operations

3a Exposure to litigation related to services offered (Business)

4g Adverse changes in regulations that significantly increase costs.

1

Potential Top 10 Risks#

2

3

4

5

6

7

8

9

10

Insignificant

Likelihood of Risk Occurrence

Minor

Moderate

Major

Remote Unlikely Possible Likely Almost certain

1f

3e

4c

4e

4f

4j

1c

1d1e

2b

3g

3b 3d3f

3a3h

4b

4d

4g

4h

4i

5a

5c

1a2c

2a

5b3j

3i3c

1b

4a

Catastrophic

Ris

k C

on

se

qu

en

ce

Regulatory Risks Policy Risks

• Allows risks to be ranked using criteria (e.g. impact, probability of occurrence and control effectiveness). • Risk assessment reflect assessment phase, combined with the contaminated site and industry

experience and content. Typically, this takes the form of a ‘risk-grid’, an example of which is illustrated in Figure R3.3.

• Allows progress over time to be mapped and communicated easily


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Risk review at a site level

• Each location has unique characteristics and circumstances

• There is much uncertainty forecasting future activities associated with site environmental management and cleanup

• Assumptions, based on analogous locations and/or engineering experience, are used to “fill-in-the-blanks” where evidence is not available in minimizing uncertainty at environmental sites.

• Cost projections based on site information with uncertainty and assumptions can have a broad range of results.

• It is important to have professional resources that can identify and prioritize uncertainty and develop appropriate assumptions that can help mitigate financial reporting risk.

• Periodic re-evaluation of uncertainty and assumptions is essential to financial reporting risk management

Action 6:

Recognition – Inventory your Environmental standards


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Recognition - Environmental standards

Environmental standards:

• Legally binding and enforceable regulations come in different forms statute, by-law, order, permit, contract or agreement

• In force now (not proposed)

• Quantitative legal standards – stipulates acceptable levels of contamination

• Qualitative legal standards – prohibition of environmental impacts, will be judgmental

• Internal government policies and external industry guidelines – voluntary compliance may create a liability


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Steps needed:

• Make an inventory of the rules you will be judged by. (e.g. http://www.env.gov.bc.ca/epd/remediation/standards_criteria/index.htm)

• Make certain you have the skill-set to know all the applicable rules

• Determine whether an environmental engineer be brought in to document the rules

• Determine applicable quantitative & qualitative restrictions to ensure compliance

• Determine which internal policies and guidelines would require a liability to be recorded

• Document this all!

Action 7:

Define site analysis approach- Inventory your sites


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Steps needed:

• Make an inventory of all sites – not just those you know are contaminated

• Staged approach to site review

• Initial site assessments should act as a filter

• Use of environmental assessment checklists will be part (but not all) of this

• E.g. use of BC Provincial tier 1 review would be helpful;

“Recommended Guidance and Checklist for Tier 1 Ecological Risk Assessment of Contaminated Sites in British Columbia”

• Drive to site specific reviews

• Understand when to bring in specialists for site specific reviews

• Define the measurement approach – how do we turn issues into liabilities?

• Document this all!

Action 8:

Recognition – measurement of contamination


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Recognition - Contamination

• Contamination must exceed environmental standard to create a liability

• If uncertainty about existence of contamination, recognize liability based on probability of contamination being confirmed in the future.

• If probability is ‘likely’ then recognize if reasonably estimated

• Helpful hints per PS3260.15“Necessary to review all historical information including; Nature of past activities Location, hydrology and geology Results from testing and field investigations Experience at other sites Significance of sites”


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Recognition - Contamination

Steps needed:

• Decide whether you have the skill-set to undertake to research and/or testing

• Determine whether an environmental engineer is brought in to either research or test or both

• Determine applicable quantitative & qualitative restrictions to ensure compliance

• Understand standards and develop strategies to ensure compliance • Assess the uncertainty and probability of confirmation

Action 9:

Develop a strategy for environmental specialists


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Role of environmental specialist

• Strategic role of the environmental specialist must be acknowledged

• An Environmental Specialist is a key resource for;

• Regulatory issues

• Technical analysis and interpretation

• Cost projections

• Assumption development

• Identification of issues that should be included/excluded from the site environmental information

• Timing of external help – regular and often or in site-specific only issues?

• Benefits of professional opinions weigh against external help through a long-term project with associated costs

Action 10:

Develop a strategy for your auditor


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Auditor involvement

• Explicit acknowledgement on the part of the reporting entity for frequent auditor involvement.

• Audit involvement should be an integral part of the project governance process.

• Agree policy and documentation at an early stage.

• Agree milestones along the way for review.

• Clear specification is made of what is to be expected and when for all key deliverables, including timely Public Sector technical partner involvement.

Overview:


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Top ten eleven issues for your PS3260 Project Plan

Key Issues

1. Understand the basics behind the standard

2. Raise awareness

3. Project plan

4. Policy before action

5. Risk

6. Inventory of regulations

7. Define site analysis approach - inventory of all sites needed

8. Define measurement approach

9. Role of environmental engineer

10. Role of auditor

11. …..get started!

Questions?


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Regulatory standards perspective &Role of the Environmental Professional

PS3260 Contaminated Sites WorkshopThursday, November 14, 2013

Whitehorse, Yukon Territories


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Outline

Page 49

Regulatory Standards and Role of Environmental Engineer

Audit steps and audit trail for the project


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Auditor involvement

• Explicit acknowledgement on the part of the reporting entity for frequent auditor involvement.

• Audit involvement should be an integral part of the project governance process.

• Agree policy and documentation at an early stage.

• Agree milestones along the way for review.

• Clear specification is made of what is to be expected and when for all key deliverables, including timely Public Sector technical partner involvement.


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Auditing Challenges

New standards will result in a number of accounting and auditing challenges, which can be broken down into 2 main parts: “getting ready for day one” and “creating a sustainable process”:

A. For opening day (March 31, 2015 reporting), inventorying existing sites and potential for contamination

1. Approaches to determining whether in or out of scope (i.e. out of productive use)2. How to obtain historical information on previous activities or use of properties3. Determining corporate policy for standard of remediation – right level for policy? How is this

documented?4. Educating municipal staff to ensure that internal records can support the initial recording of journal

entries

B. For ongoing reporting (i.e. after 2015)5. Maintaining and monitoring inventory of sights; new properties, changes to use or contamination

levels.6. Re-evaluating / updating policies for remediation7. Monitoring “at-risk” sites and relevant environmental standards8. Monitoring and updating status of sites (i.e. in/out of productive use)9. Continuity schedules from one period to the next. What assumptions are moving?


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Audit Requirements

The Auditor has requirements for obtaining audit evidence with respect to the initial recording of the contaminated sites liability as well as subsequent measurement, additions and costs incurred

Types of Audit Assertions

Completeness

Accuracy

■ Estimates

■ Recorded amounts

■ Costs incurred

Presentation

Disclosures

Types of Audit Evidence

Inspection of records or documents – inventory of sites against TCA records/GIS

Observation and enquiry

Third-party assistance (environmental consultants)

Recalculation

Tests of expenditure records

Comparisons across organizations and jurisdictions


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Preparing for the audit

The implementation must be supportable and auditable (auditors need to be able to see where the numbers and disclosures come from)

Suggested documents necessary for the audit include:

• Site inventory with support for completeness (i.e. comparison to GIS; TCA registers; BCAA assessment rolls)

• Documentation of procedures used to ensure all sites were included and evaluated for potential contamination

• Basis for determining whether or not site is in productive use (policy, status) (e.g. Were interviews undertaken? Were questionnaires submitted and responses obtained?)

• Basis for determining existence of environmental standards applicable to site

• Basis for determining whether contamination exceeds standard (Consultant reports? Internal assessments?)

• A schedule of costs incurred, if any, against the recorded liability

• Basis for re-measurement at the next year-end


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Preparing for the audit

When estimation methods are being used, need to obtain explanation of how estimates were developed and how it was ensured all future costs are captured.

Need to verify assumptions – requires documentation of; the assumptions factors considered in developing the assumptions an evaluation of the reasonableness e.g. Standard of remediation or expected recoveries.

Meet with your auditor/client at various stages to discuss timeline, approach, valuation methods, policies, etc.


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Estimation techniques

Municipalities will be required to make use of many estimation techniques:

Cost estimates – external experts; internal experts Inflation rates inherent in estimates of future costs Discount rates to determine present value of future costs No prescriptive guidance but PSAB generally requires assumptions to be

internally consistent – i.e. rates used to discount future cash flows for liabilities

Auditors will be required to verify these techniques


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Audit considerations upon initial recording

Accuracy and completeness:• What are the sources of data?

• What processes have been used to complete the site inventory?

• How did management assign sites to various categories or buckets – i.e. risk factors applicable to multiple properties

• What are the capitalization thresholds?

Estimates:• What is policy for measurement? Not prescribed.

• What information is readily available?

• Is the information reliable?

• Alternative valuation methods

- Independent consultants reports used?

- Estimation methodology used? Need to document

Presentation & disclosures• Are financial statement disclosures in accordance with GAAP?

Have you created valid expectation to remediate sites? This may include;

• Government committed to remediation plan

• Identified location of contamination

• Communication to those affected by contamination

• Contamination reduction target and time frame identified

• Evidence that expectation can be relied on


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Issues that we have run into to date

• Integrity of spreadsheets

• Determination of “in productive use”

• Whose responsibility is it? Important for leased sites; transferred properties; tax sale properties

• Inflation rates for estimating future costs

• Discount rates for present value of future costs

• Rigour around locating documents relating to historical use of properties

• Validity of assumptions


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Summary

Just as application of PS3260 requires municipalities to apply professional judgment (i.e. estimation techniques, assumptions); municipal auditor must also apply professional judgment (risk assessment, testing techniques, materiality, using work of experts)

For many questions and inputs, there may not be a “right answer” readily available (eg. “in productive use”)

Consult your auditor – early and often

Questions?

PS3270 Solid Waste landfill closure and

post-closure liability


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Landfill Operations – Scope PS3270.01-.11

In scope:

• Applies to all operating and closed landfill sites of governments and their organizations.

• Certain activities relating to a site or phase are required before it opens, during its operating life and when it stops accepting waste.

• Only the expenditures relating to those activities required when the site or phase stops accepting waste are included in the closure and post-closure care liability.

Out of scope:

• Opening expenditures, such as those associated with locating a site or constructing a leachate collection system;

• End-use expenditures, such as those that transform the site into park land, as they would be attributable to that end-use and not to the landfill; and

• Unforeseen or catastrophic events, such as a major leachate collection system failure.


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Landfill Operations – Scope PS3270.01-.11

Closure activities

All activities related to closing a landfill site

1. final cover and vegetation; and

2. completing facilities for:

• drainage control features;

• leachate monitoring;

• water quality monitoring; and

• monitoring and recovery of gas.

Post closure careAll activities related to monitoring the site once it can no longer accept waste

• acquisition of any additional land for buffer zones;

• treatment and monitoring of leachate;• monitoring ground water and surface water;• gas monitoring and recovery; and• ongoing maintenance of various control

systems, drainage systems, and final cover.

Definition of a landfill“Area of land or excavation that receives waste that may include household waste, commercial solid waste, non-hazardous sludge, and industrial solid waste”

Government legislation and regulations set out a stringent environmental approval process for landfill sites.


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Recognition and Measurement PS3270.12-.20

Liability definition under PS3200;

• Settlement of the past transaction or event is expected to result in the future sacrifice of economic benefits.

• Under environmental law, there is a liability for closure and post-closure care.

• The existence of the liability is known with certainty.

• It is not sufficient to disclose the closure and post-closure care liability as a contingency or a contractual obligation.


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Recognition and Measurement PS3270.12-.20

How to recognize the liability?

A liability for closure and post closure care is recognized as a site’s capacity is used – usage should be measured on a volumetric basis (e.g. cubic metres)

• Liability estimated when site starts to accept waste

• Recognize over the estimated operations of the site

• If site operates in a phased basis - liability associated with that phase would be fully recognized when the phase stops accepting waste

• Site capacity may be limited by a length of an agreement or a permit to operate as opposed to the physical capacity of a site


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Recognition and Measurement

Estimated total expenditure

Cumulative capacity used

Total estimated capacity

Expenditures previously recognized

• Estimated total expenditures = discounted future cash flows associated with closure and post-closure activities

• Capacity used is based on a rational and systematic method

• Discount at Government long-term borrowing rate

• Only estimate costs using current technology


67

Disclosure

Key Issues:

• Estimates of total expenditure fluctuates

• Nature of ‘Estimated total capacity’ fluctuates. Both;

• Time to closure

• Capacity to receive waste

• Definition of post-closure care versus end-use expenditures

Recognition and Measurement


68

Disclosure

What does my accounting policy look like?

• Nature and source of landfill closure and post-closure care requirements

• Basis of recognition and measurement

• Reported liability, estimated total expenditures, amount remaining to be recognized

• Remaining capacity of the site and estimated remaining landfill life

• How financial assurance requirements are being met (i.e. letters of credit)

• Amount of assets designated for settling liabilities

• Estimated length of time needed for post closure care

Disclosure


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Sample Disclosure

“Included in environmental liabilities is $25 million of estimated total landfill closure and post-closure care expenses.

The landfill closure and post-closure care requirements are mandated by the Environment Act and include the final covering and landscaping of the landfill, as well as gas management, on-going monitoring, site inspections, and maintenance.

The estimated liability is recognized as the landfill’s capacity is used. In order to estimate the liability, management must use its best estimates which are subject to management uncertainty given the length of time the estimates must project. Given this uncertainty, significant changes to the future expenses, capacity and liabilities may occur in the future. In this case, these estimates would be dealt with prospectively.

The total expected liability related to closure and post closure care is expected to be $30 million. The land fill is at 85% capacity based on a volumetric basis and has an expected useful remaining life of 10 years. At which time the landfill will be closed and undergo perpetual post closure care maintenance. A reserve has been established to fund the closure and post-closure care costs and has a balance of $17 million.”

The information contained herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavor to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation.

© 2013 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.

The KPMG name, logo and “cutting through complexity” are registered trademarks or trademarks of KPMG International.

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