You are one of the seven members of the FASB. The FASB was recently criticized in a cover story in a major newsmagazine. The topic was “accounting for environmental liabilities.” The main point of the article was that the accounting for potential environmental liabilities is governed by the obscure terms “probable, possible, and remote.” In addition, the article claimed that firms could avoid recognizing a liability for future environmental cleanup costs by simply arguing that the costs cannot be “reasonably estimated.”
Of course, the charges in the newsmagazine cover story were repeated in the network TV news programs. Various accounting academics appeared on the morning news shows to pontificate about the slowness of the FASB to address the vital area of environmental accounting. Environmental groups have started picketing outside FASB headquarters, shouting that the FASB is conspiring with “Big Business” to hide the corporate responsibility for cleaning up the environment.
You have been chosen to write the FASB’s response to this criticism. Address your memo to the editor of the weekly newsmagazine and restrict it to 1 page or less. (Note: This scenario is hypothetical—you are not a member of the FASB, the FASB’s environmental accounting practices have not been the subject of a Time or Newsweek cover story, and environmental groups have not picketed the FASB. Yet.)