Discussion of Estimation and Market Valuation of Environmental Liabilities Relating to Superfund Sites

Abstract

Accounting research on the estimation and valuation of environmental liabilities is rare despite the importance of environmental liabilities for both financial and managerial accounting. From a financial accounting perspective, individuals interested in valuing organizations which are potentially subject to environmental costs must estimate the valuation implications of those environmental costs, and further must be able to estimate the extent to which the financial statements already incorporate accruals for those environmental liabilities. As such, this area is of potential importance to those interested in valuing firms and to standard setters such as the FASB or the SEC who establish standards for disclosing and recognizing environmental costs. In this context, the Barth and McNichols paper addresses a topic of concern to managers, investors, and standard setters. The Barth and McNichols paper addresses two primary issues. The first issue is whether projected environmental costs associated with the cleanup and maintenance of Superfund sites can be reasonably estimated by a simple linear model using data from various stages in the identification of Superfund sites. The second issue is whether the market's assessment of environmental liabilities exceeds amounts accrued by corporations. Many comments at the conference focused on the extent to which the paper addresses important accounting issues related