Accounting standard PS 3280 requires all public sector organisations to prepare an estimate of costs related to retiring assets (such as buildings). These costs include environmental costs such as asbestos abatement and groundwater decontamination.
This article explores a project where ECOH was retained to create an estimating methodology for the Ontario Ministry of Education to satisfy PS 3280.
Introduction: What is the PS 3280 Accounting Standard?
In April of 2022, accounting standard PS 3280 became effective, requiring all public sector entities to account for the cost of retiring assets, including environmental costs.
This means that local governments are being required to estimate the costs associated with the retirement of any tangible capital asset. A tangible capital asset includes such physical resources as roads, vehicles, buildings, equipment, land and utility systems. Retiring such assets may require abatement of hazardous materials within buildings (e.g., asbestos) or mitigating other environmental liabilities (e.g., underground storage tanks, groundwater decontamination, etc.).
Standard PS 3280 explicitly mentions buildings containing asbestos, as there is a significant cost associated with removing this hazardous substance. In the past, these costs were typically only considered at the time of retirement or sale, leaving local governments with unforeseen large asbestos-abatement expenses when it came time to divest buildings. Such unforeseen expenses could have flow on impacts, restricting public entities’ budgets in other critical areas (health and emergency care, for example).
Context: Public Sector Accounting Standards (PSAS) for School Boards
Any asset that is managed by the public sector (health care, schools, government buildings, etc.) is governed by public sector accounting standards (or PSAS). PSAS are established by the Public Sector Accounting Board (PSAB), and PS 3280 – Asset Retirement Obligations is a relatively new standard applicable to public entity controlled assets.
Similar to the provincial government, school boards follow the PSAB standards. Their financial results are consolidated into the province’s Public Accounts. The Ministry of Education’s Financial Standards and Consolidation (FSC) Unit in the Financial Analysis and Accountability Branch (FAAB)
- identifies consolidation issues and information requirements,
- collects financial data from school boards, and
- consolidates their financial information into the provincial budget and Public Accounts.
PS 3280 requires school boards to measure the retirement obligation of their assets and report it in their financial statements for fiscal years after 2021. The Office of the Provincial Controller Division (OPCD) requested that the ministry collect information from school boards by fall 2020 for the purpose of preparing the 2021-22 Multi-Year Plan (MYP) and the 2021-22 Public Accounts.
Case Study: Ministry of Education
Advisory Service to Develop an Asset Retirement Obligation (ARO) Estimation Methodology – All Sites
In July 2020, ECOH was retained by the Ontario Ministry of Education to develop an ARO estimation methodology for the school board sector.
As of 31st August 2019, school boards in Ontario (n.72) own over:
- $17B of various type of buildings,
- $519M of equipment, and
- $53M of leasehold improvements.
To estimate the retirement obligation of these assets, school boards required a costing model to help them estimate the liability associated with hazardous materials and other environmental liabilities. ECOH was retained by the Ministry to develop a costing model to distribute to school boards for their use in calculating their environmental liabilities.
ECOH worked closely with representatives from the Ministry of Education, Office of the Provincial Controller Division (OPCD), as well as external audit consultants to evaluate existing hazardous material inventory data and develop a user-friendly estimation model. ECOH also prepared user-friendly training manuals and provided training to staff to outline how to populate and use the ARO cost estimate model.
The ARO estimation methodology that ECOH developed for Infrastructure Ontario buildings used available building and hazardous materials information such as:
- Building year of construction, size, asset use/function, location etc.
- Annual asbestos and designated substances survey reports, and
- Phase I and Phase II ESAs and other environmental information.
The information, as well as industry standards and extensive project management experience was used to estimate costs associated with the removal of asbestos, lead and other hazardous materials for the estimated end-of-life of the tangible asset. The ARO estimation model that ECOH developed was extensively reviewed and approved by the Ministry, OPCD, as well as external and provincial auditors and was deemed an overwhelming success.
Conclusion
There are myriad components in an Asset Retirement Obligation evaluation, and it is important to understand the scope of asbestos and hazardous materials management when developing AROs as required by PS 3280.
Estimating asset retirement obligations can be an overwhelming project, but ECOH is here to help. With decades of experience in asbestos and hazardous materials project management, abatement specification development and project tendering, we will work with you to develop a comprehensive hazardous materials ARO estimate. Reach out to our experts at info@ecoh.ca today.
