Today’s environmental disclosure expectations are worlds apart from older standards, leaving boards to decide how to properly disclose environmental liabilities.
It is a well-known “dirty secret” that environmental liability estimates developed in conformance with U.S. accounting standards are unreliable and all too often materially understated. The vagaries of contingency accounting and environmental law and science, however, have made it practically impossible to empirically demonstrate this conclusion. As a result, the inherent incentives for manipulation have been unconstrained. Those days are over.
Financial analytical techniques are now being used to gauge the reliability and relevance of corporate disclosures of liabilities arising under the Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA or Superfund), the Resource Conservation and Recovery Act (RCRA), and similar state laws.
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