Regulatory requirements and accounting rules implemented in the past decade have made calculating a company's current and future financial obligations more time consuming and complicated. Small mistakes when accounting for the cost of retiring assets can cause monetary and possibly legal trouble for an organization. To help its customers calculate their asset retirement obligations (AROs) more accurately and easily, SAP has developed SAP Asset Retirement Obligation Management, a solution that automates the data management and accounting processes associated with AROs. This article explains the importance of ARO management and how SAP's new application can streamline your accounting efforts.
Asset retirement obligation (ARO) may not mean much to people outside the finance department, but it’s an important accounting requirement that companies must fulfill, for both regulatory compliance and business reasons. For many years, it has involved manual, time-consuming steps, especially for companies in asset-intensive industries such as utilities, telecommunications, oil and gas, mining, and retail.
To help our customers streamline their efforts and increase the accuracy of their ledgers, SAP has developed an application that automates the data management and accounting processes associated with managing AROs. SAP Asset Retirement Obligation Management, scheduled to be generally available this year, will be a welcome solution to companies with a large number of assets or with a significant amount of asset retirement costs that must be calculated according to one or more accounting principles.
Why ARO Management Is Important
Regulatory requirements and accounting rules implemented in the past decade call for deeper visibility into companies’ current and future financial obligations. Regulators and investors don’t like surprises, so regulations and accounting principles now govern how companies account for and display the costs they will incur when they retire assets in the future (see sidebar). Those assets include equipment, buildings, land, or other items.