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Shelburne
POLICY PURPOSE
Policy 54
ASSET RETIREMENT OBLIGATIONS ( ARO)
The objective of this Policy is to define the accounting
processes
for asset retirement
obligations
ARO) so that readers of the financial report can interpret information about these assets, and their
end -of -life
obligations. The
principal
issues
in
accounting
for
ARO'
s
is
the
recognition
and
measurement
of these obligations.
BACKGROUND
The Municipality of the
District
of Shelburne
shall account for and report on asset retirement
obligations ( ARO) in compliance with the Public Sector Accounting
Board ( PSAB) Handbook, section
3280.
POLICY
1. This Policy applies to all departments, branches, boards, and agencies falling within the reporting
entity of the Municipality
of the District of Shelburne, that possess asset
retirement
obligations
including:
Assets with legal title held by the Municipality
Assets controlled by the Municipality
2. The policy applies to all applicable assets, including those
that
have
not been
capitalized
or
recorded as a tangible capital asset for financial statement purposes.
3. Existing
laws and regulations
require
public
sector entities to take specific
actions
to
retire
certain
tangible
capital
assets
at the
end of their
useful
lives. This
includes
activities
such
as
removal
of asbestos, and
retirement
of landfills. Other obligations
to
retire tangible
capital
assets may arise from contracts or court judgments, or lease arrangements.
4. The
legal
obligation, including
obligations
created
by
promises
made
without
formal
consideration, associated with retirement
of tangible capital assets controlled by MODS, will be
recognized
as liability
in the accounting books in accordance with PS3280 which will be adopted
starting April 1, 2022.
5. Asset retirement
obligations
result from acquisition, construction, development, or normal use
of the asset. These obligations
are predictable, likely to occur and unavoidable. Asset retirement
obligations
are
separate
and
distinct
from
contaminated
site
liabilities. The
liability
for
contaminated
sites
is
normally resulting
from
unexpected
contamination
exceeding
the
environmental
standards. Asset
retirement
obligations
are
not
necessarily
associated
with
contamination.
1
POLICY
REQUIREMENTS
a. Recognition
A liability should be recognized when, as at the financial reporting date:
a. there
is
a legal obligation to incur
retirement
costs in relation to
a tangible
capital asset;
b. the past transaction
or event giving rise to the liability
has occurred;
c. it is expected that future economic benefits will be given up; and
d. a reasonable estimate
of the amount can be made.
ii.
A liability for
an asset retirement obligation cannot be recognized
unless
all the criteria
above are satisfied.
iii.
The estimate
of the liability
would
be based on requirements in existing agreements,
contracts, legislation or legally enforceable obligations, and technology expected to be
used in asset retirement activities.
iv.
The estimate
of a liability should include costs directly attributable
to asset retirement
activities. Costs would include post -retirement
operation, maintenance
and monitoring
that
are an integral part of the retirement
of the tangible capital asset.
v.
Directly attributable
costs
would include, but are not limited to, payroll and benefits,
equipment and facilities, materials, legal and other professional fees, and overhead costs
directly attributable
to the asset retirement activity.
vi.
Upon
initial
recognition
of a liability
for
an asset
retirement
obligation, MODS
will
recognize
an
asset retirement
cost
by increasing
the carrying
amount of the related
tangible capital
asset (
or
a component
thereof) by the
same
amount
as the liability.
Where the obligation
relates to an asset which is no longer in service, and not providing
economic
benefit, or to an item not recorded by MODS
as
an asset, the obligation
is
expensed
upon recognition.
vii.
The capitalization thresholds applicable
to the different
asset categories
will also be
applied to the asset retirement
obligations
to be recognized within each of those asset
categories.
b. Subsequent
Measurement
The asset retirement costs will be allocated to accretion expense
in a rational
and systemic
manner
straight-
line method) over the useful life of the tangible capital asset or a component
of the asset.
On
an annual basis, the existing asset retirement
obligations
will be assessed for any changes
in
expected cost, term to retirement, or any other changes that may impact the estimated obligation.
In addition, any new obligations identified will also be assessed.
2
c.
Presentation
and Disclosure
The liability for asset retirement
obligations
will be disclosed .
d.
Roles and Responsibilities
of Departments
i.
Departments
are required
to:
a.
Communicate
with Finance
and outside
contractors
on retirement
obligations, and
any changes
in asset condition
or retirement
timelines,
b.
Assist in the preparation
of cost estimates for retirement
obligations, and
c.
Inform
Finance
of any
legal
or contractual
obligations
at inception
of any
such
obligation .
ii.
Corporate
Management
shall
implement
the
asset
retirement
obligation
policy
in
accordance
with the legal obligation
of the Federal and Provincial
legislation.
iii.
Finance
is responsible
for the development
of and adherence
to policies for the accounting
and reporting
of asset retirement
obligations
in accordance
with Public Sector Accounting
Board section 3280. This includes
responsibility
for:
a.
Reporting
asset
retirement
obligations
in
MODS
financial
statements
and
other
statutory financial
documents,
b. Monitoring
the application
of this Policy,
c.
Managing
processes
within the TownSuite
accounting
module,
d. Submitting
financial
statements
for
review
and
comment
to the
MODS
financial
auditor, and
e.
Investigating
issues and working with responsible
Departments
to resolve
issues .
e.
Decision Tree
A decision tree to determine
applicability
of this Policy is attached
as Appendix
A.
LEGISLATIVE
AND
ADMINISTRATIVE
AUTHORITIES
Public
Sector
Accounting
Board,
Public
Sector
Handbook,
Section
PS
3280
Asset
Retirement
Obligations.
DEFINITIONS
Accretion
expense
is the
increase
in
the
carrying
amount
of a liability
for
asset
retirement
obligations
due to the passage of time.
Asset retirement activities include all activities related to an asset retirement
obligation . These may
include , but are not limited to :
decommissioning
or dismantling
a tangible
capital
asset that was acquired, constructed,
developed, or leased;
remediation
of contamination
of a tangible capital asset created
by its normal
use ;
post -retirement
activities
such as monitoring; and
constructing
other tangible capital assets to perform
post- retirement
activities .
3
Asset retirement cost is the estimated
amount required to retire a tangible capital asset.
Asset retirement obligation
is a legal obligation
associated
with the retirement
of a tangible capital
asset.
Retirement of a tangible capital asset is the permanent
removal
of a tangible
capital
asset from
service . This term encompasses
sale, abandonment,
or disposal
in some other manner
but not its
temporary
idling.
THIS IS TO CERTIFY that the Council of the Municipality
of the District of Shelburne
duly passed the
policy respecting
Asset Retirement
Obligations ( ARO) on April 26, 2023 .
2023
CHIEF ADMINISTRATIVE
OFFICER
Approved
by Council: April 26,2023
Effective
Date :
April 1,2022
4
ATTACHMENT " A"
Decision tree - Scope of applicability
Is there a present obligation
associated
v.,ith the
asset retirement
or remediation?
Yes
Doe;; the obligation
result from acqw. z.ition.,
construction,
development
or nonnal use
of a tangible
c.ap.ital as.- set?
Yes
l
h
there a legal obligation
to inc11r asset
retirement
co-ns associated ,,.- rith a
tangible
capital asset contrnlled by the
public sector entity?
Yes
r,
ASSET RETIRB. 1ENT
OBLlGATIONS ,
Section
PS 3280. applies
No -~
No
l
Em' U"onmental standard
exist s
i Ye-!>
Contammation
exceeds
em'1.Conmenta1
standard
i ye5
The public
s.« toc entity
is directly responsible
or accepts
respo nsibility
i Yes
See LLi\BII..ITY FOR
CONTAMIN...<\.
TED SITE S,
Section PS 3260
5
No
0
No
No
See LIABILITIES.
Section
PS 3 200
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