Transcript of "Inventory accounting & management [compatibility mode]"
Inventory Accounting & I t A ti & Management for Company X
Contents: Introduction Wh i i What is inventory and Purpose of inventory d P f i Inventory Recognition. Risks associated with inventory. Inventory Controls. Inventory Cost Structure. Reporting requirements for inventory. Inventory Audit.6/7/2012 Hamdy Rashed, CMA, CAPM 2
Introduction This presentation is prepared for justifying the relation‐ ships between Finance and Accounting function and Supply Chain and Logistics function in order to make 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 y different function. This presentation does not cover the initial purchase for inventory, it covers the inventory management in details and supply chain in summary. pp y y6/7/2012 Hamdy Rashed, CMA, CAPM 3
What is inventory y A physical resource of items held in stock with the intent of using it for drilling wells. intent of using it for drilling wells P Purpose of holding stock. f h ldi k Economies of purchasing (Discount, hedge) Transportation savings Meet variations in drilling well needs. g6/7/2012 Hamdy Rashed, CMA, CAPM 4
Recognizing inventory g g y Material in Transit and Incoterms 2000 FOB CIFCFR Ex‐Work seller’s premises or buyer’s premises/DDP6/7/2012 Hamdy Rashed, CMA, CAPM 5
Recognizing inventory g g y Inventory owned by Company and held in the warehouse or site. warehouse or site Consignment held in the warehouse or site.6/7/2012 Hamdy Rashed, CMA, CAPM 6
Risks and Inventory y 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 g6/7/2012 Hamdy Rashed, CMA, CAPM 7
Inventory Controls y Inventory controls should be designed and evaluated by COSO or 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 Storage safety environment.6/7/2012 Hamdy Rashed, CMA, CAPM 8
Inventory Costing Formula y g FIFO Th The materials that are first‐in are first out t i l th t fi t i fi t t The Drilling well is charged by old inventory price Th The remaining stock on hand is evaluated based on i i k h d i l d b d current price. Specific Identification. For small number of items For small movement of items.6/7/2012 Hamdy Rashed, CMA, CAPM 9
Reporting Requirements p g q International Financial Reporting Standards (IFRS). Fi Financial Statements and disclosures. i l St t t d di l 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).6/7/2012 Hamdy Rashed, CMA, CAPM 10
Reporting Requirements ‐ Cont p g q Internal Reporting. AAccounting purposes ti Drilling & Management purposes6/7/2012 Hamdy Rashed, CMA, CAPM 11
Audit on Inventory y International Standards on Auditing (ISA) Audit samples Testing controls Substantive test (Analytical procedures and Test of details) Audit Report. P d i Sh i A Production Sharing Agreements and Cost Recovery Audit. d C R A di Audit Samples Review the documents approval and calculations Review the documents, approval and calculations. Checking how far from budget. Cost Recovery Audit Report y p6/7/2012 Hamdy Rashed, CMA, CAPM 12
Audit on Inventory ‐ Continued y Joint Operation Agreement and Joint Venture Audit. A dit S Audit Samples l Review the documents . Ch ki h f f Checking how far from budget. b d Checking the existence of inventory J i V Joint Venture Audit Report A di R Audit is checking some financial assertions (e.g. Existence, ownership, Accuracy and Valuation) E i hi A d V l i )6/7/2012 Hamdy Rashed, CMA, CAPM 13
Recommendations 1 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 pp y g g g agreement with Corporate policy. 4 Recording the drilling materials owned by entity to LLI 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 cover the physical count, inventory reports, normal and abnormal inventory variances (shortage or overage) and how to treat such variances, and safety of the warehouses. h t t t h i d f t f th h6/7/2012 Hamdy Rashed, CMA, CAPM 14
Recommendations ‐ Continued 6 Coordinating with Drilling management that have clear drilling plan program to determine the required materials per well and giving Logistics proper lead time to order and ll d l d d d receive the materials. 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 the records. 8 Performing physical count on frequently basis, reconcile it to the inventory records and adjust the variances obtain the approval for variances from the proper parties as per the agreements.6/7/2012 Hamdy Rashed, CMA, CAPM 15
Recommendations ‐ Continued 9 Transferring excess materials between licenses operated by Corporate rather than purchasing the t d b C t th th h i th materials with considering the risk of price transferring. t f i 10 Looking at the potential cost and benefit for any large purchases made, and find ways to save l h d d f d money for the entity.6/7/2012 Hamdy Rashed, CMA, CAPM 16
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