AUDITING ENVIRONMENTAL LIABILITIES

The environmental laws and regulations in the United States of America have established a base to cleanse our environment. There are many unresolved matters related to accounting and auditing for these edicts. No synthesized discussion exists on these issues within the accounting or auditing literature. This paper reviews secondary sources to overcome this void and to identify major issues concerning implementation. This paper details the pertinent federal laws and regulations. Polluters and other parties face liabilities for non-compliance with the laws, and claims for personal injury or property damage. But potentially the most significant of the environmentally-related liabilities is the remedial cleanup required by the Superfund legislation. The courts have held four classes of parties responsible for cleanup of hazardous waste sites: (1) current owners and operators, (2) owners and operators at the time of the waste disposal, (3) hazardous waste generators, and (4) hazardous waste transporters. Once named as a potential responsible party, an entity is faced with estimating costs of the cleanup. A recent court decision has also found lenders potentially responsible for the hazardous waste problems of borrowers. This situation raises a number of accounting and auditing issues, including problems of estimating Superfund cleanup liabilities, the proper accounting procedures for these costs, disclosure considerations, risk assessment factors, appropriate audit procedures, and the possible impact on the audit report. In view of the serious problems of evaluating and auditing environmental liabilities, a number of opportunities for research are proposed.