Waste companies have great latitude in setting reserves (liabilities) for future environmental costs at their...
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Waste companies have great latitude in setting reserves (liabilities) for future environmental costs at their dumps. The process involves estimating how high the costs will be 30 years or more in the future and calculating how big a fund is needed in today's dollars to satisfy the future obligation. For example, Waste Management Inc., previously accused of using aggressive accounting methods, once recorded a $173.3 million cost that lowered its third-quarter profit by 63 percent. The cost included $45 million to boost cleanup reserves for some dumps, $26 million to increase reserves for litigation, and $72.3 million to boost reserves for future claims. What are some of your thoughts on how to evaluate how high the liabilities should be? Be sure to include both long-term and short-term thoughts in your answer. What would the impact look like if the depreciation life on its equipment were changed to 15 from 10 years?
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