Asset retirement obligations … hmmm …. what’s that? Sounds like you’re cashing in your retirement fund, packing up your desk and moving to Florida. Well, in the world of business accounting and finance, asset retirement is an important accounting requirement; especially for companies that are in industries like utilities, telecommunications and retail. It’s for those industries that have physical assets that will wear out over time or need to be removed at a specific point. In these cases, assets include equipment, buildings and land – not your retirement fund!
Recently, Frank Krause, Jens Kram and Markus Bredel where interviewed for an article in SAP Insider about a solution to help streamline customers’ efforts in managing asset retirement obligations (ARO for short). It’s a complicated topic that most of us never consider. Frank and Jens are the ARO solution owners and Markus is the technical lead architect. They provided good examples that helped make this topic more understandable to non-accounting types like me.
Many companies are still in the dark ages and handle ARO with a separate spreadsheet for each asset. If you are talking about a large telecom company, to satisfy their auditors the company would need to show on its books the cost of removing each cell tower once the lease for the land expires, plus the cost of restoring the land to its original state. That’s one spreadsheet for each asset! And each spreadsheet would need to be maintained separately; then the data would be manually entered into their ERP system. My first thought is that this process is a recipe for disaster. All that manual entry has huge potential for human error. And if something has to change, how do you ensure that it gets made across all spreadsheets? Just think of all the “people hours” this kind of data entry takes!
Now Frank, Jens and Markus know more about the ARO evaluation and accounting processes than anyone I’ve ever met. The solution that they champion is SAP Asset Retirement Obligation Management. It takes the pain out of tracking assets over time. No more spreadsheets or manual entry. This application focuses on data management and accounting. It allows users to create, adjust, update and store information regarding asset retirement obligations within the SAP system. It applies financial and accounting standards and performs all the calculations. And it is fully integrated into SAP ERP Financials, so it automatically will handle postings to the general ledger, accruals and asset accounting. Overall this solution provides dramatic time savings while creating a clear audit trail and streamlining regulatory compliance…saving enough time for the user to take that trip to Florida.
Did I pique your interest? Want to learn more about SAP Asset Retirement Obligation Management? Read the SAP Insider Article.