The Public Sector Accounting Board has a new public sector accounting standard, PS 3280, Asset Retirement Obligations (ARO).

The following is a quick-format list of everything you need to know about it.

What is it?

An ARO is a legal obligation associated with the retirement of a tangible capital asset.

Who does it apply to?

The application of Section PS 3280 relates to all public sector entities following Public Sector Accounting Standards.

What is considered to be a retirement activity?

Retirement activities include, but are not limited to:

  • Decommissioning or dismantling a tangible capital asset that were acquired, constructed or developed
  • Remediation (clean up) of contamination of a tangible capital asset created by its normal use
  • Post-retirement activities such as monitoring
  • Constructing other tangible capital assets to perform post-retirement activities

What are some examples?

The primary examples include removal of asbestos, removal of storage tank, wastewater or sewage treatment facilities, and closure/post closure liabilities relating to landfill sites.

When does it take effect?

This section takes effect for fiscal years beginning on or after April 1, 2022, which means that reporting year ending December 31, 2023, will be the first year impacted.

What is the criteria?

The criteria for recognition of ARO liability is:

  • There is a legal obligation to incur retirement costs in relation to a tangible capital asset
  • The past transaction or event giving rise to the liability has occurred
  • It is expected that future economic benefits will be given up
  • A reasonable estimate of the amount can be made

Recoveries should be recognized when:

  • The recovery can be appropriately measured
  • A reasonable estimate of the amount can be made
  • It is expected that future economic benefits will be obtained.
  • A recovery should not be netted against the liability

How is it measured?

Measurement of an ARO liability should be the best estimate of the amount required to retire a tangible capital asset at the financial statement date.

The liability estimate encompasses costs directly attributable to asset retirement activities including:

  • Post-retirement option, maintenance and monitoring that are an integral part of the retirement of the tangible capital asset
  • Costs of tangible capital assets acquired as part of asset retirement activities to the extent those assets have no alternative use
  • The liability should be estimated based on available information at the financial statement date

What if there is measurement uncertainty?

There may be an indeterminate settlement date for the ARO, such as when a public sector entity may be uncertain when the cash flows associated with an ARO will occur. Uncertainty about the timing and amount of settlement of the ARO does not remove that obligation, but will affect the measurement of the liability.

Which costs need to be considered?

Tangible capital assets that could be impacted include those that are controlled by the municipality or regional services commission.

The standard applies to all assets, including:

  • leased assets (whether they are in productive use or not)
  • fully amortized and unrecognized tangible capital assets

Which costs do not need to be considered?

Costs that would be considered to be outside the scope of the standard include:

  • routine replacement or maintenance
  • improper use of a tangible capital asset
  • remediation of contaminated sites related to unexpected events
  • waste and by-products produced by tangible capital assets
  • preparing a tangible capital asset for an alternative use


If you have any questions about this article, Asset Retirement Obligations, or any of our related services, please contact one of our Audit Experts or complete the contact form below.


Calvin Scott

Calvin Scott

Calvin’s professional focus is shared by owner-managed businesses and not-for-profit clients. From start-up to transitioning, growth strategies to tax planning, he has the expertise clients need.

Service Expertise: Audit , Business Advisory
Industry Expertise: Non-Profit , Public Sector , Construction

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