An examination of the information content of a specific environmental disclosure, potentially responsible party status, in publicly held corporations

In spite of investor interest, the information that entities disclose about environmental issues is varied and quite often inadequate. Although some do report and disclose certain environmental information in financial statements or other venues, many PRPs neither recognize environmental liabilities on their balance sheets nor disclose their PRP stams. Even those that do report environmental information often report such limited information that its usefulness is questionable. As a result, the financial information that investors are provided varies and is. in many cases, inadequate.

From an accounting perspective, the principal problems associated with environmental issues are those of recognition, measurement, and disclosure. Recognition is the process of formally recording or incorporating an item into the financial statements. It includes depiction of an item in both words and numbers, with the amount included in the totals of the financial statements (FASB 1984). Measurement involves the choice of an attribute (e.g., cost, replacement cost, fair value) by which to quantify a recognized item FASB 1984). Disclosure in financial statements may take the form of an item's being recognized in the body of the financial statements (e.g.. a liability being measured at historical cost and reported in the liabilities section of the balance sheet) or in the accompanying notes to the financial statements (FASB 1984). In addition, the disclosure of financial information can be made outside the financial statements (e.g., in a press release reported in a business publication, such as The Wall Street Journal).