FASB Agenda Consultation Comment 2025
Office of the Technical Director
801 Main Avenue
P.O. Box 5116
Norwalk, Connecticut 06856-5116
June 30, 2025
Re: FASB Agenda Consultation – File Reference No. 2025-ITC100
Dear Mr. Jackson M. Day,
On behalf of Public Citizen and the undersigned groups, we urge the Board to revisit the initial recognition and measurement criteria for Asset Retirement Obligations (AROs) as outlined in Subtopic 410-20. The current ARO guidance has enabled the systematic omission of large, foreseeable environmental liabilities from financial statements.
AROs are supposed to quantify legal obligations that companies incur to retire long-lived tangible assets, such as oil refineries, pipelines, and wells, at the end of their useful lives. However, current U.S. Generally Accepted Accounting Principles (GAAP) have enabled widespread underreporting of these material liabilities due primarily to excessive deference to management estimates regarding asset life.
Many companies exploit an ostensible loophole in GAAP to keep AROs off their balance sheets by claiming that their assets have “indeterminate lives” and will not be retired in the foreseeable future. This results in companies avoiding recognition of substantial ARO liabilities.
A related practice involves the use of extremely long-tailed estimates of the timing of settlement. Under GAAP, companies may discount liabilities using a credit-adjusted rate. The use of extremely long estimates–often long after the assets have been fully depreciated, results in the costs being deemed immaterial. Companies frequently assume the cleanup or retirement will happen 60 to 80 years from now. This horizon is unrealistic, especially in light of accelerating net-zero targets and refinery closures, and enables companies to minimize the reported cost of their obligations. It is especially troublesome for infrastructure that will need to be decommissioned in light of economic shifts accelerating the retirement of fossil fuel infrastructure, as is illustrated by the example below.
Under Subtopic 410-20, AROs must be recognized at fair value when incurred, but only if the fair value and the timing of settlement can be reasonably estimated. Companies exploit this condition by asserting that retirement timing is unpredictable despite legal obligations and industry-wide precedent indicating otherwise. For example, Valero Energy Corporation, a major U.S. refiner, reported $0 in ARO liabilities for its fifteen refinery assets, even though the company is legally required to decommission them eventually. Valero’s annual report claims:
It is our practice and current intent to maintain all our assets and continue making improvements to those assets based on technological advances. As a result, we believe that assets at our refineries and plants have indeterminate lives for purposes of estimating asset retirement obligations because dates or ranges of dates upon which we would retire such assets cannot reasonably be estimated at this time.
Despite this, in April of this year, Valero announced that it would close the Benicia refinery in California by the end of April 2026. Though to our knowledge it has not yet reported the AROs associated with this closure, it will imminently have to. Thus, in the span of a single year, Valero will pivot from claiming the Benicia refinery’s economic life was indeterminately long, allowing it to leave this liability off of the balance sheet, to commencing closure of the refinery.
This practice raises significant concerns regarding transparency, comparability, and investor risk exposure. Refineries, like oil wells, will not operate in perpetuity, particularly in the context of the ongoing energy transition and decarbonization commitments.
These liabilities are material to company valuation and creditworthiness. In 2006, Standard & Poor’s estimated that 50% of fossil fuel companies’ debt obligations were environmental remediation liabilities and AROs. Yet, these costs are still largely hidden because of GAAP accounting loopholes. The continued failure to recognize these costs obscures the true financial condition of companies, undermines capital market efficiency, and increases systemic risk, especially in sectors where asset stranding is a foreseeable consequence of climate policy and market dynamics.
We strongly urge FASB to revise and eliminate the “indeterminate life” loophole by requiring companies to recognize the fair value of all asset retirement obligations, regardless of management’s claimed uncertainty around timing. This should include mandating the use of expected present value models based on internally developed assumptions, supported by robust disclosures of methodology, key assumptions on discount rates and useful life, and risk factors. The Board should also issue industry-specific guidance, particularly for sectors with significant environmental liabilities and consistent decommissioning obligations such as oil and gas production, refining, pipelines, and chemical manufacturing.
FASB’s mission to improve the usefulness of financial reporting depends on ensuring that companies disclose meaningful and decision-useful information about future obligations. The current ARO guidance has enabled the systematic omission of large, foreseeable environmental liabilities from financial statements. By updating the recognition and measurement criteria, the Board can close this loophole and ensure that investors and other stakeholders have access to accurate and transparent financial data.
Sincerely,
Public Citizen