ARO accounting is particularly significant for remediation work needed to restore a property, such as decontaminating a nuclear power plant site, removing underground fuel storage tanks, cleanup around an oil well, or removal of improvements to a site.
Firms must recognize the ARO liability in the period in which it was incurred, such as at the time of acquisition or construction.
[2] A company builds a gas station, with underground tanks to store the fuel.
Calculations are somewhat different under IAS 37, because the discount rate is regularly recalculated during the life of the ARO to reflect current market conditions.
Whenever the rate changes, the present value is recalculated, and both the asset and liability are adjusted by the amount of the difference.