Richard Murphy says:
November 2 2021 at 5:09 pm
You ask a question that is, in accounting terms, not difficult to answer. The fact is that estimation of liabilities arising at least 30 years hence is entirely normal within accounting. For example, every pension fund includes estimates of liabilities arising much further into the future than that. Despite that, pension fund accounts are customarily incorporated into the accounts of their sponsoring employer.
In addition, from the moment that a nuclear power plant is commissioned a provision is created for the cost of its decommissioning, the liability for which might last for centuries.
And, in another sector, it is normal for the environmental costs of making good the damaged created by mining and other types of mineral extraction to be included in accounts even though, again, these might be incurred a long time in the future.
So, how do we do it? We simply use best estimates based upon current knowledge, current technology, and currently anticipated time scales for the liabilities arising. Is it perfect? No, of course it is not. That, I entirely accept. But what I am proposing is no more likely to be wrong, if best efforts are used, than any of the above noted provisions.
I should add that auditors are also entirely used to expressing opinion on these provisions, so again, nothing that I’m asking them to do is beyond their current experience.
Everyone of those costs – and benefits – being subject to discounting. Apparently the thing we’re not allowed to use any more.