Schedule 5.7 - Asset Retirement Obligation Liability Continuity

This schedule tracks the continuity of asset retirement obligation (ARO) liabilities in the year. School boards must input ARO liability activity from September 1, 2025 to August 31, 2026 .

Lines are provided for each of the following asset classes:

• Land improvements (with finite lives)
• Buildings - 40 years
• Other Buildings
• Portable Structures
• Equipment
• Assets permanently removed from service - Buildings - 40 years
• Leasehold improvements
• Capital leased assets

There is also a line for assets held for sale, which should be used when the corresponding TCA-ARO asset has been transferred to financial assets. Additionally, the schedule includes several lines for school boards to record ARO liabilities that were directly expensed (e.g., liabilities related to assets that don’t meet the capitalization threshold, liabilities transferred in from solid waste landfills).

In the Financial Statements cycle, the lines for land improvements, buildings 40 years, other buildings, assets permanently removed from service, and assets held for sale are populated based on data entry on the Schedule 5.7 Asset Retirement Obligation - Detail Data form.

Discounted cash flow (DCF) is a technique that determines the present value of future cash flows. Under the DCF method, one applies a discount rate to each periodic cash flow. Multiplying this discount by each future cash flow results in an amount that is, in aggregate, the present value of all future cash flows.

The foundation of discounted cash flow analysis is the concept that cash received today is more valuable than cash received at some point in the future.

With the effort involved, the province set out the following factors in consideration of the use of discounting on reporting to the province. Discounting to be used in situations where:

• The liability is material (threshold for reporting to province is greater than $10 million per liability/asset/type).

• The cash flows are reasonably set in both amount and timing (e.g. defined by contract).

• And the cash flow settlement period extends beyond 5 years from the initial recognition date of the liability.

School boards should determine, in discussion with their auditors, if they will use present value method for their own reporting as it may be different than what is used in the reporting to the ministry.

The Office of the Provincial Controller Division has worked with the Ontario Financing Authority (OFA) to determine sector level discount rates. These rates can be found in the document titled “OFA Effective Annual Rates” in EFIS under the Reference Material folder. The document will be updated with the most current rates as they become available.

The ministry does not plan to send out updated ARO costing models since they were initially provided to help school boards estimate their ARO liability upon implementation of the new ARO standard in 2022-23. For any new ARO liabilities, school boards should use another way to estimate the ARO. One possibility is to use property-specific estimates that have been done by third parties that may be available for a particular asset. If similar work has been done on an asset, information may be extrapolated to the new asset. Alternatively, the expertise of the school board’s capital department can be used to provide an estimate.

A thorough review of the liability by school boards is to occur at a minimum of every five years, as is currently done for tangible capital assets, to ensure general assumptions are current and valid. The carrying amount of a liability for ARO should be reconsidered at the school boards’ financial reporting date(s) to account for new information that may become available. A review should occur annually and should include consideration of revisions to timing, estimates, and discount rate.

Column 1: Description

This column is only applicable to the directly expensed items, on lines 10 to 15. Please enter a description of the liability.

Column 2: ARO Liability - Opening Balance September 1

The opening balances are pre-populated from the 2024-25 board-submitted Revised Estimates closing balances. Adjustments are not permitted in this column.

Column 3: ARO Liability - Adjustments to Opening Balance

This column may be used to adjust the loaded opening balances to the latest data available. In Revised Estimates, the adjustment, if any, plus the pre-loaded opening balance should agree to the closing balance of the prior year Financial Statements.

Column 4: ARO Liability - Changes in the Estimate

Input changes in the ARO liability values due to changes in the estimates. These could arise from new information or a reassessment in the year. For ARO associated with recognized TCA, the change in estimates amount calculated based on ARO liability should apply to both ARO liability (Sch 5.7 column 4) and TCA-ARO GBV (Sch 3E-1, column 3). Below is the sample journal entry:

DR TCA-ARO-GBV                    xxx 
  CR ARO Liability                  	xxx 

• The carrying amount of a ARO liability should be reconsidered at the school board’s financial reporting date(s) to account for new information that may become available. Review will occur annually at minimum and will include consideration of revisions to timing, estimates, and discount rate. If a significant event occurs in year, such as remediation activities or a significant change in liability estimate, these changes should be reflected at the time of the change. Refer to ARO Policies and Implementation Guide for more details.

  • In Fall 2023, the ministry provided training on ARO revaluation (slides 4 to 7) which included a method to calculate the inflation rate. The training slides can be viewed in the training material task list in the S2223FIS application. In summary, the methodology is taken from the Canada Building Construction Price Index (BCPI) survey, for non-residential buildings, and is the average of the two Ontario datapoints captured within the survey (Ottawa and Toronto) based on the most current information available for the last four quarters, thus considering the seasonality of construction services. This method may be used for future reporting cycles.

• Warning_SC5.7_1 checks that the total input in this column is greater than or equal to the sum of the change in estimates reported on Schedules 3E (column 3) and 3D (column 13). If a school board receives this warning and Warning_SC9_1 because they had an asset held for sale (AHFS) or an asset permanently removed from service (PRFS) prior to the adoption of ARO on September 1, 2022, please indicate this in the warnings explanation as this is a valid reason to ignore the warning message(s).

Column 5: ARO Liability - Liabilities Incurred During the Year

Input increases due to ARO liabilities incurred in the year.

Column 6: ARO Liability - Accretion Expense

Input accretion expense, in the case where the present value method was used for an ARO liability. Positive values should be entered in this column (per PS 3280, accretion expense is the increase in the carrying amount of a liability for asset retirement obligations due to the passage of time).

Column 7: ARO Liability - Disposals

Input decreases to ARO liabilities due to disposals. This column should only be used when a school board has disposed of the related asset, without abatement of the ARO liability. Negative values should be entered in this column.

Column 8: ARO Liability - Abatement

Input any decreases to an ARO liability as a result of abatement activity. Negative values should be entered in this column.

Column 9: ARO Liability - Transfers Between Asset Class

Use this column to transfer liability amounts between the Assets in Service categories (Land Improvements, Buildings-40 years, Other Buildings, or Equipment) and Assets Permanently Removed from Service or to Assets Held for Sale. All asset transfers from Capital Leased Assets to Assets Permanently Removed from Service and vice-versa would also be reported here. Note that the amounts in this column should net to zero.

Column 10: ARO - Closing Balance August 31

This column is calculated as the sum of columns 2 to 9.