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Asset Retirement Obligations Resource Centre

Overview and insights for the public sector


Public sector entities in Canada have legal obligations to retire certain tangible capital assets at the end of their lives. In accordance with the Public Sector Accounting Board’s (PSAB) new PS 3280 Asset Retirement Obligations (AROs), which come into effect this year, a liability must be reflected in their financial statements.

This accounting standard, issued in August 2018, establishes guidelines for public sector entities that address the accounting and reporting of legal obligations associated with the retirement of tangible capital assets.

Section PS 3280 is effective for fiscal years beginning on or after April 1, 2022, which means March 31, 2023 and Dec. 31, 2023 will be the first year-ends impacted.

The new standard on AROs introduces several key benefits to public sector entities, including:

  • Enhancing stakeholder understanding of the cash flow requirements to meet future obligations.
  • Assisting users’ understanding of the full cost of the tangible capital assets acquired or developed.
  • Improving consistency in accounting for these obligations.
  • Bringing current standards into alignment with environment, sustainability, and governance (ESG) reporting.

What is an asset retirement obligation?

Under Section PS 3280 of the Public Sector Accounting Standards (PSAS), an ARO is a legal obligation associated with the retirement of a tangible capital asset.

Before PS 3280, ARO guidance was limited to PS 3260, Liability for Contaminated Sites, and PS 3270 Solid Waste Closure and Post-Closure Liability. It is important to understand the scope of the new standard and how it interacts with these previous sections.

Typical examples of asset retirement obligations which fall under the scope of PS 3280 include:

  • Closure and post-closure obligations associated with landfills.
  • Buildings with asbestos.
  • End of lease provisions (from the perspective of the lessee).
  • Decommissioning of fuel storage tanks, fire water holding tanks, or septic beds.
  • Removal of radiologically contaminated medical equipment.
  • Sewage or wastewater treatment facilities.

Key ARO considerations for public sector entities

a person writing in their notebook

Whether you represent a healthcare, educational, or government entity, reporting on AROs in accordance with PSAB standards can add significant complexity to managing assets in the public sector.

Organizations must recognize which assets are impacted by the changes and properly estimate the liability. From a larger perspective, the public sector must understand how PS 3280 interacts with other related standards under PSAS and move towards using international standards as the basis for financial reporting.

End-to-end, flexible, and value-oriented ARO management

two people talking

Correctly measuring the liabilities to be recognized requires the application of professional judgement. Our Accounting Advisory team can assist with the scoping and recognition of AROs to avoid unnecessary reporting, show these provisions in the balance sheet of your company, and process the financial obligations associated with asset retirements within the legally required time frame.

Many new standards are expected to come into effect in the public sector over the next few years. We can help you apply these standards to your obligations and support your organization through the required reporting and auditing of AROs and other new standards.

Additional resources

Webinar—Public sector update: A wave of accounting changes

Several new accounting standards will take effect in the next few years. These changes are significant, yet many are flying under the radar of public sector organizations.

Watch the video recording to learn which accounting changes apply to your organization.

Asset retirement obligations: Recognition and measurement at a glance
This guided walk-through helps you recognize and measure AROs.
Liability for contaminated sites: Recognition and measurement at a glance
There are several criteria to apply when recognizing and measuring a liability for contaminated sites.
A practical approach to contaminated sites according to section PS 3260
Understanding your liability for a contaminated site can be overwhelming.

Alicia Croskery, Assurance and Accounting Partner
[email protected]

Jeanine Laity, Assurance and Accounting Senior Manager
[email protected]

We understand it's not easy to navigate these changes alone.
BDO is here to help. Contact us.

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