I t A ti & Inventory Accounting & Management for Company X
Nov 07, 2014
I t A ti & Inventory Accounting & Management for Company X
Contents: IntroductionWh i i d P f i What is inventory and Purpose of inventory
Inventory Recognition. Risks associated with inventory. Inventory Controls. Inventory Cost Structure. Reporting requirements for inventory.Reporting requirements for inventory. Inventory Audit.
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IntroductionThis presentation is prepared for justifying the relation‐ships between Finance and Accounting function and ships between Finance and Accounting function and Supply Chain and Logistics function in order to make the transactions process between two different functions the transactions process between two different functions goes in harmony to achieve entity’s overall objectives, and to increase the effectiveness and efficiency of each ydifferent function.This presentation does not cover the initial purchase for This presentation does not cover the initial purchase for inventory, it covers the inventory management in details and supply chain in summary.pp y y
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What is inventoryy A physical resource of items held in stock with the intent of using it for drilling wellsintent of using it for drilling wells.
P f h ldi k Purpose of holding stock. Economies of purchasing (Discount, hedge) Transportation savings Meet variations in drilling well needs.g
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Recognizing inventoryg g y Material in Transit and Incoterms 2000
FOB FOB
CIF\CFR
Ex‐Work seller’s premises or buyer’s premises/DDP
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Recognizing inventoryg g y Inventory owned by Company and held in the warehouse or sitewarehouse or site.
Consignment held in the warehouse or site.
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Risks and Inventoryy Risk of transporting stocks
D Damage
Risk of holding stock Inventory growing at a rate greater than needs. Obsolescence Missing or stolen materials. Damage
Drilling operation stoppage. High purchasing cost.g p g
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Inventory ControlsyInventory controls should be designed and evaluated by COSO or any Internal Controls Framework.any Internal Controls Framework. Procure inventories based on final drilling program and
considering the lead time from requesting the materials and received them in the entity’s premise
Maintaining inventory recording system (Inventory receipt and issuance authorization documentation tracking records)issuance authorization, documentation, tracking records)
Potential cost and benefits of large purchases Physical count Physical count Storage safety environment.
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Inventory Costing Formulay g FIFO
Th t i l th t fi t i fi t t The materials that are first‐in are first out The Drilling well is charged by old inventory priceTh i i k h d i l d b d The remaining stock on hand is evaluated based on current price.
Specific Identification. For small number of items For small movement of items.
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Reporting Requirementsp g q International Financial Reporting Standards (IFRS).
Fi i l St t t d di l Financial Statements and disclosures.
( ) Production Sharing Agreement (PSA). Statement of Expenditures (SOE). List of inventory held by the Company. Cost Recovery Statements (CRS).
Joint Operation Agreement (JOA)J p g (J ) Joint Interest Billing (JIB).
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Reporting Requirements ‐ Contp g q Internal Reporting.
A ti Accounting purposes Drilling & Management purposes
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Audit on Inventoryy International Standards on Auditing (ISA)
Audit samplesAudit samples Testing controls Substantive test (Analytical procedures
and Test of details) Audit Report. P d i Sh i A d C R A di Production Sharing Agreements and Cost Recovery Audit. Audit Samples Review the documents approval and calculations Review the documents, approval and calculations. Checking how far from budget. Cost Recovery Audit Reporty p
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Audit on Inventory ‐ Continuedy Joint Operation Agreement and Joint Venture Audit.
A dit S l Audit Samples Review the documents .Ch ki h f f b d Checking how far from budget.
Checking the existence of inventoryJ i V A di R Joint Venture Audit Report
Audit is checking some financial assertions (e.g. E i hi A d V l i )Existence, ownership, Accuracy and Valuation)
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Recommendations1 Keeping drilling materials owned by entity in different records from consignments, rental materials.g ,
2 Using consistent stock code over years.3 Applying FIFO method for evaluating drilling materials in 3 pp y g g gagreement with Corporate policy.
4 Recording the drilling materials owned by entity to LLI then issued from LLI except for consignment and rental then issued from LLI except for consignment and rental items that should be direct well cost.
5 Establishing new policy or updating the current policy to 5 Establishing new policy or updating the current policy to cover the physical count, inventory reports, normal and abnormal inventory variances (shortage or overage) and h t t t h i d f t f th hhow to treat such variances, and safety of the warehouses.
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Recommendations ‐ Continued6 Coordinating with Drilling management that have clear drilling plan program to determine the required materials
ll d l d d dper well and giving Logistics proper lead time to order and receive the materials.
7 Inventory records and Purchase orders records should have 7 Inventory records and Purchase orders records should have adequate information and common references between other records with Finance and our Customs Authority’s records to have easily and proper reconciliations between records to have easily and proper reconciliations between the records.
8 Performing physical count on frequently basis, reconcile it to the inventory records and adjust the variances obtain the to the inventory records and adjust the variances obtain the approval for variances from the proper parties as per the agreements.
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Recommendations ‐ Continued9 Transferring excess materials between licenses
t d b C t th th h i th operated by Corporate rather than purchasing the materials with considering the risk of price t f itransferring.
10 Looking at the potential cost and benefit for any l h d d f d large purchases made, and find ways to save money for the entity.
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