Reporting Effects of SFAS 143 on Nuclear Decommissioning Costs

SFAS 143, Accounting for Asset Retirement Obligations, has the potential to cause significant economic consequences to firms impacted by its provisions. BK&L (Boatsman, J. R.; Khurana, I. K.; Loudder, M. L. “The Economic Implications of Proposed Changes in the Accounting for Nuclear Decommissioning Costs,” Accounting Horizons, 14 (2), June 2000, pp. 211–233) suggests that companies would be required to record materially increased assets, liabilities, and expenses which may subsequently cause a significant impact to commonly used financial ratios. BK&L developed predictions of the pro forma effect on assets, liabilities, and expenses due to SFAS 143 adoption by nuclear power utilities. This study examines the actual financial statement effect on BK&L's sample firms due to the adoption of SFAS 143. Results indicate that concern voiced over the standard's requirement to capitalize asset retirement obligations and the related asset, and to record additional expenses by nuclear power companies may have been unfounded.