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FASB ASC Guide > FASB ASC 410

The Financial Accounting Standards Board (FASB) released the 400 section of the Accounting Standards Codification for the purpose of discussing the braod topic of Liabilities. Accounting Standards Codification 410 (ASC 410) was released to address the more specific topic of asset retirement obligations and environmental obligations companies have for conducting certain types of business.

Conceptually, an Asset Retirement Obligation (or ARO) is a liability which is setup for the eventual disposal of an asset. Certain types of assets are required by the government to be disposed of in specific ways. As there is a legal obligation to dispose of these, the cost can be estimated and therefore the expense may be accrued for ahead of time. One example would be a coal strip mining operation. Once the coal has been mined, the government typically requires the mining company to plant new grass, trees, etc. on top of the area mined rather than leave it stripped bare. The cost of the grass and tree planting would be the retirement obligation.

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