12
FMI
*
IGF JOURNAL
VOLUME 25, NO. 1
Accounting for Contaminated Sites
J. Bailey Church
The Public Sector Accounting Board’s
accounting standard on Liability for
Contaminated Sites (Section PS3260),
will be a reality in less than a year for
all entities reporting under the Public
Sector Accounting (PSA) standards. This
accounting standard will impact federal,
provincial and municipal governments, as
well as Crown corporations, universities,
school boards, and hospitals reporting
under the PSA standards. Issued in 2010,
PS3260 has an effective date of year’s
beginning on or after April 1, 2014.
This section addresses liabilities for
remediation related to sites, or parts of a
site no longer in active or productive use.
This section does not apply to liabilities
for closure and post-closure care of a solid
waste landfill site when the site or a phase
stops accepting waste. This is addressed
under a separate section, PS3270, and not
considered in this article.
Despite giving public sector entities four
years to prepare for this new standard,
many entities have yet to determine the
extent of impact that PS3260 may have
on their financial reporting. For some
entities, this may result in unnecessary
surprises with their reported results for the
2014-15 fiscal year, and create challenging
discussions with audit committees.
Public sector entities need to plan for
contaminated sites now.
Why are Contaminated Sites an Issue?
My experience with contaminated sites
spans a wide spectrum. On a personal
level, many years ago my family owned
some commercial property which was
partly found to be impacted by an aging,
leaky gas tank installed by an old tenant.
My first experience with contamination
was reading through environmental
site assessment reports and discussing
remediation strategies at the dinner table!
Professionally, I have advised federal
government departments on measuring
their environmental liabilities, working
with environmental engineers and
remediation project teams.
What makes the implementation of
PS3260 especially difficult is the existing
The report commented that the provincial
comptroller general did not have complete
information to determine the Province’s
liability for contaminated sites.
In addition to the lack of information
many governments have related to their
contaminated sites, the measurement
of environmental liabilities requires
substantial professional judgment and can
vary widely year to year. How a government
accounts for long term monitoring costs,
for example, and the assumptions applied
to index and discount future remediation
expenditures can materially impact the
amount of the liability reported.
Technical Overview
While PS3260 does not change the
fundamental definition of liability, it does
provide guidance on applying the existing
definition of a liability in the Public Sector
Accounting Handbook to the specific
context of contaminated sites.
PS3260 specifies that a liability for a
contaminated site must be recognized
when, as at the financial reporting date,
all
of the following criteria are met for a site or
a portion of a site which is not in active use
(text in italics added for interpretation and
analysis):
(a) An environmental standard exists
(most commonly through enacted
federal, provincial or local legislation,
applicable bylaws, permits, or conditions
specified in contracts and agreements)
;
(b) Contamination exceeds the environ
mental standard
(as established in
an environmental site assessment by a
professionally qualified environmental
engineer);
lack of information which restricts many
governments from fully determining the
impact on their financial reporting, and
from reporting back on how effectively
funds are being spent on remediation.
To illustrate, the Office of the
Auditor General’s Commissioner of
the Environment and Sustainable
Development reported in June 2012
that the federal government faced up to
$7.7 billion in environmental liabilities
at March 31, 2011 across approximately
22,000 actual, suspected, or closed federal
contaminated sites. As of 2013, 12,417
of these 22,000 sites were actual or
suspected contaminated sites which had
not yet been classified according to the
Federal Contaminated Sites Inventory
(implying insufficient information to
enable an assessment of risk pertaining
to the site). The potential environmental
liability related to these unclassified
sites and suspected sites could have
a substantial impact on the financial
reporting of the Government of Canada.
The Commissioner’s report also noted
that the federal government did not have
a performance reporting system to enable
identification of whether funds spent on
cleaning up sites was delivering results.
The situation across many provinces
and municipalities is very similar, with
many contaminated sites still requiring
additional analysis to determine the extent
of any potential liability which should
be recorded – with less than one year to
go until PS3260 is effective. As a case in
point, Nova Scotia’s Auditor General
reported in June 2010 that the Province
needed to improve monitoring of
contaminated sites. A 2012 update on the
OAG’s findings noted that the Province
was still working to develop a system for
public reporting on contaminated sites
based on risk, to be completed summer
2013. The Province was also working to
develop a contaminated sites inventory
system for July 2013.
Similarly, the Report of the Auditor
General of Newfoundland and Labrador
in January 2011 noted that the Province
needed to strengthen the identification
and remediation of contaminated sites.
