Avoid the pitfalls of calculating
asset retirement obligations & liabilities:

Q&A on AROs, SAP AROM, & SAP ERP Financials
with expert Nathan Genez

For finance teams, fulfilling regulatory requirements for long-life fixed-asset retirement obligations (AROs) often involves  constant monitoring, point solutions, and external spreadsheets. How does the new SAP Asset Retirement Obligation Management (AROM) solution change manual approaches to ARO accounting? 

Ask your ARO questions in a live online Forum with Financials 2012 speaker and  SAP Financials expert Nathan Genez here in the Financials Forum today, March 29 from 12:30-1:30 pm EDT.

To post your question, first log in to Insider Learning Network, and select the “Post Reply” button below.  (Don't have a login? Join Insider Learning Network  today for free.) Nathan will be posting his responses to your questions here today, March 29 from 12:30-1:30 pm EDT.

If you haven't registered for this Q&A, you can still register now  to download an excerpt from Nathan Genez’s presentation “Prevent assets from becoming a liability using SAP Asset Retirement Obligation Management (AROM)” from GRC 2012. (Look for the download link in your email confirmation.)

Moderated by Allison Martin, Conference Producer,  Financials 2012 US & Financials 2012 Europe

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Welcome to today's forum  

Thank you for joining us today! In this one-hour forum, we invite you to ask your questions on Asset Retirement Obligations (AROs) in SAP.

I’d also like to thank Nathan Genez for taking questions today! Nathan is a former Platinum Consultant with SAP America Inc. and is currently a Managing Partner at Serio Consulting. Nathan is also a technical advisor and author for Financials Expert. He has just come back from presenting a number of sessions at the Financials 2012 event in Las Vegas, and we’re very happy to have him here discussing one of his session topics: AROs and SAP’s new solution for ARO calculations, SAP Asset Retirement Obligation Management. 

If you have a question for Nathan, please be sure to first log in to Insider Learning Network. (If you are not yet a member, sign in here.) Nathan will post his answers to your questions in the forum today from 12:30-1:30pm EDT.

Then click the "Post Reply" button below to enter your questions. Please periodically refresh your browser to see the most recent posts.

Nathan, do you want to start with a quick overview of the challenges of ARO calculations from an accounting perspective? Then members can post their specific questions, and we can also throughout the hour talk about evaluating the new solution from SAP, integration issues, how it will impact current processes, and other issues.

Nathan, can you provide a quick overview of the challenges of ARO calculations from an accounting perspective?

Hello, Nathan

Thanks for taking time today to answer our questions. Here is mine:

How is AROM integrated with SAP ERP Financials, including General Ledger, FI-AA, and Lease Accounting (FI-LA)?

Thanks, Gary

Mar 29, 2012 -- 12:43PM, Keven Purnell wrote:

Our current process is to calculate the AROs in Excel.  We have to estimate the cash requirements out for several years and then perform the calculations to get the net present value for each obligation. SAP can now do this?

Can it handle adjustments and subsequent changes to cash amounts?

Yes.  The new solution... the full name is SAP Asset Retirement Obligation Management...  allows you to handle an ARO in the following manner:

1. An ARO is created with some basic parameters such as it's setup date, interest rate and inflation rate keys (basically, a variant to a configuration table), the asset class for the ARO asset, and some other items.
2. For each ARO, there are multiple Cost Estimation Plans (CEP) where the specifics of your cash outlays can be recorded.  For instance, you could create a CEP for $1MM that is valid for the next 30 years.  You can create multiple transactions within a CEP in situations where the obligation requirements are staged over several years. 
3. Once you've entered the CEP, the ARO essentially has its financial value.  There is a component within ARO that does the calculation.  It inflates the cost estimate you entered earlier out to its expected settlement date (30 years in the above example), and then does the NPV calculation to find out how much is required to setup up the liability today.
4. Once the ARO is released, an FI posting is made to setup the liability and the associated ARO asset in fixed assets.

For your second question, yes, subsequent changes to the initial cost estimation can be made.  After all, it's reasonable to expect that the cost of removal might change as the asset (antenna, oil righ, asbestos litigation) grows in size/value.