Mar 29, 2012 -- 12:40PM, Allison wrote:

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

Well, the challenges of the calculation are that they're currently done offline.  As Keven points out, it's usually done in Excel.  From what I've seen at every customer that has tracked AROs, it's always done in Excel.  That's not a controlled environment.

Probably the second challenge with this is a lack of integration.  Once you calculate the ARO value in excel, you have to load it into SAP ERP.  Then you have to load the periodic accruals each month to record the ARO's accretion expense.  If you have a lot of AROs, that's a lot of spreadsheets to maintain and a lot of uploads to make. 

SAP's solution is (obviously) integrated with FI-GL so that all of these postings are made on a monthly basis.  It's also integrated with fixed assets (FI-AA) so that changes to the ARO (ex. termination) can be reflected in the associated ARO asset.

Mar 29, 2012 -- 12:50PM, Gary Byrne wrote:

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

 

 

I guess I answered some of that with Allison's question.  To bullet it out...

• FI-GL -- the AROM solution integrates with the GL for the initial setup of the ARO liability and the periodic postings of accretion expense.  The latter is handled by another utility within FI called the Accrual Engine.  It handles the management of periodic accruals such as this quite well.
• FI-AA -- For every ARO, an associated ARO asset is also setup.  This is a virtual asset, not a true fixed asset because it's not a tangible piece of equipment / property.  Nonetheless, you are allowed to depreciate the value of the ARO liability amount.  When the ARO is released, the fixed asset record is automatically created and posted to.  From there, normal FI-AA functionality takes over in terms of depreciating the asset along with all other assets in the subledger.
• FI-LA -- LA is not directly used or requireed, but there is a component of it called the Lease Accounting Engine (LAE) that is leveraged by AROM.  To describe it...  LAE serves as middleware or an integration layer for this SAP solution. For example, when the AROs are valuated and released it is LAE's job to reach out to the GL and make the initial FI posting. It is LAE's job to reach out to FI-AA to create and post to the new fixed asset record.  LAE is delivered pre-configured (mostly) so it's not something that should be seen or interacted with once the AROM solution is operational.

Mar 29, 2012 -- 12:52PM, Scott Wallask wrote:

Hi Nathan, nice to see you on the forum today. Do you how SAP ARO calculates inflation changes? Is that automated at all in ARO or is it just the result of someone monitoring the rates externally?

The initial inflation calculation as part of the ARO's valuation is definitely automated. For US GAAP, inflation rate changes aren't supposed to influence the value of the ARO so they won't trigger a change in the ARO's provision value.

AROM is also supported for IFRS and German HGB and I believe they handle inflation rate changes differently.  In their case, the ARO value will change.

Thank you all again for joining us. We have time for 1-2 more questions before the forum ends.

Currently, AROM is still in RampUp but it will most likely be generally available sometime in Q2 of 2012.