The future expected cost of an ARO is based on the current cost plus an inflation factor you enter. You may conclude in the middle of the life of the ARO that the inflation recognized is not accurate for future accretion. While you can change the inflation rate at any time for an individual ARO, at times you may want to change a group of leases in the same way. Such updates are generally required annually of entities covered by IAS 37.
New inflation rate
Enter the new inflation rate, as a percent (2.5% should be entered as 2.5).
Enter the effective date of the change in rate. The change takes effect before any activity for the day.
Include AROs expiring before booking date
Since AROs remain active beyond their expiration date until explicitly terminated, you can have inflation changes apply to AROs that have officially expired. To leave the inflation rate in place that was valid when the ARO expired, leave this box unchecked.
Include AROs beginning after booking date
If checked, any AROs with a begin date later than the booking date will be reset to use the inflation rate specified, with no revision created (that is, the original inflation rate is replaced by the new rate).
Leases to include
You may apply the inflation change to all properties or a subset.
• All: All leases and AROs in database
• Select by lease number: A list of all lease numbers is displayed; check the boxes for the leases whose AROs you want to change.
• Select by User-Defined Field: Choose the user-defined field to select on, and then choose one or more valid matches.
If the ARO begin date is on or after the booking date for the inflation rate update, the inflation rate is simply updated and applied from inception. If the ARO has a revision date later than the inflation booking date, the ARO is skipped and a warning message is displayed at the end of the update process.
Otherwise, a new revision is created for each ARO in a selected lease (unless the new inflation rate is the same as the previously recorded rate). As of that date, a new future ARO payment cost is calculated, and the change is present valued back to calculate the change in the current ARO. The difference is added to or subtracted from both the ARO liability and the ARC asset; if the difference results in a reduction larger than the remaining net asset, the excess is recognized as a gain.
ARO Inflation Rate