HomeMy Public PortalAboutBy-law 2024-13 - Adopt Asset Retirement Obligations PolicyCORPORATION OF THE MUNICIPALITY OF TWEED
BY-LAW NO. 2024-13
Being a By -Law to Adopt an Asset Retirement Obligations Policy for the Municipality
of Tweed.
WHEREAS the Municipal Act, 2001, S.O. 2001, c. 25, as amended, gives general
authority for councils to adopt policies;
AND WHEREAS the Council of the Corporation of the Municipality of Tweed deems it
expedient to adopt an asset retirement obligations policy to account for and report on
asset retirement obligations (ARO) for the Municipality of Tweed in compliance with
the Public Sector Accounting Board (PSAB) Handbook;
NOW THEREFORE the Council of the Corporation of the Municipality of Tweed
enacts as follows:
1. THAT the Asset Retirement Obligations Policy attached hereto as Schedule 'A'
to this By-law is hereby adopted as the Asset Retirement Obligations Policy for
the Municipality of Tweed.
2. THAT Schedule 'A' forms part of this By-law.
3. THAT this By-law shall come into force and take effect immediately upon the
passing thereof by the Council of the Corporation of the Municipality of Tweed.
Read a first, second, and third and final time, passed, signed, and sealed in open
Council this 13th day of February, 2024.
MAYOR
SCHEDULE 'A' to BY-LAW NO. 2024-13
Asset Retirement Obligations Policy
Approval Date: February 13, 2024
Effective Date: January 1, 2023, prospective application
Policy Statement
The Municipality of Tweed shall account for and report on asset retirement obligations
(ARO) in compliance with the Public Sector Accounting Board (PSAB) Handbook,
section 3280.
Purpose
The objective of this Policy is to stipulate the accounting treatment for asset retirement
obligations (ARO) so that users of the financial report can discern 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.
Application
This Policy applies to all departments, branches, boards and agencies falling within the
reporting entity of the Municipality of Tweed that possess asset retirement obligations
including:
• Assets with legal title held by the Municipality
• Assets controlled by the Municipality
• Assets that have not been capitalized or recorded as a tangible capital asset for
financial statement purposes
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, retirement of landfills or naturalization of
aggregate pits. Other obligations to retire tangible capital assets may arise from
contracts or court judgments, or lease arrangements.
The legal obligation, including obligations created by promises made without formal
consideration, associated with retirement of tangible capital assets controlled by the
Municipality, will be recognized as liability in the books of the Municipality of Tweed,
in accordance with PS3280 which the Municipality will be adopting starting January
1, 2023.
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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.
Policy Requirements
A. Recognition
A liability should be recognized when, as at the financial reporting date:
• there is a legal obligation to incur retirement costs in relation to a tangible
capital asset;
• the past transaction or event giving rise to the liability has occurred;
• it is expected that future economic benefits will be given up; and
• a reasonable estimate of the amount can be made.
A liability for an asset retirement obligation cannot be recognized unless all of the
criteria above are satisfied.
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.
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.
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.
Upon initial recognition of a liability for an asset retirement obligation, the Municipality
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 the Municipality as an
asset, the obligation is expensed upon recognition.
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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.
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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.
C. Presentation and Disclosure
The liability for asset retirement obligations will be disclosed.
Responsibilities
Departments
Departments are required to:
• Communicate with CAO/Treasurer on retirement obligations, and any changes in
asset condition or retirement timelines.
• Assist in the preparation of cost estimates for retirement obligations.
• Inform CAO/Treasurer of any legal or contractual obligations at inception of any
such obligation.
CAO/Treasurer
GAO/Treasurer 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:
• Reporting asset retirement obligations in the financial statements of the
Municipality and other statutory financial documents
• Monitoring the application of this Policy
• Managing processes within the Asyst Tangible Capital Asset accounting module
• Investigating issues and working with asset owners to resolve issues.
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Monitoring/Contraventions
Failure to comply with this Policy may result in disciplinary action up to and including
dismissal.
References
Municipality of Tweed Employee Code of Conduct
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.
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.
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Appendix A
Decision tree — Scope of applicability
Is there a present obligation associated with the
asset retirement or remediation?
Yes
Does the obligation result from acquisition.
construction. development or normal use
of a tangible capital asset?
Yes No
Is there a legal obligation to incur asset
retirement costs associated with a
tangible capital asset controlled by the
public sector entity?
Yes
ASSET RETIREMENT
OBLIGATIONS. Section
PS 3280. applies
:v o
No
Environmental standard
exists
No
Yes
Contamination ination exceeds
environmental standard
Yes
The public sector entity
is directly responsible
cr accepts responsibility
No
Yes
See LIABILITY FOR
CON -L INATED SITES,
Section PS 3260
•
See LIABILITIES.
Section PS 3_200
•
Do noticing
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