2020 iktva survey
TRANSCRIPT
![Page 1: 2020 iktva Survey](https://reader036.vdocuments.mx/reader036/viewer/2022081514/62aba4273082a42a11528b1c/html5/thumbnails/1.jpg)
CSv1
Saudi Aramco: Public
2020 iktva Survey Steps to Complete the iktva Survey
![Page 2: 2020 iktva Survey](https://reader036.vdocuments.mx/reader036/viewer/2022081514/62aba4273082a42a11528b1c/html5/thumbnails/2.jpg)
1
Saudi Aramco: Public
Table of Contents
Introduction ............................................................................................. 2
Case Study - Background .............................................................................. 3
General Instruction ..................................................................................... 6
Page 1: Company Information ........................................................................ 9
Section 2: iktva Score ................................................................................. 13
Section 3: In-Kingdom Suppliers ..................................................................... 15
Section 4: Labor ....................................................................................... 20
Section 5: Capital Expenditures ..................................................................... 23
Section 6: Depreciation and Amortization ......................................................... 26
Section 7: Training & Development ................................................................. 28
Section 8: Supplier Development ................................................................... 29
Section 9: In-Kingdom Research & Development ................................................. 30
Section 10: Female Employment .................................................................... 32
Section 11: Revenue .................................................................................. 34
Section 12: Cost Reconciliation ..................................................................... 36
Possible Enquiries ..................................................................................... 39
Auditor Reminders..................................................................................... 39
Final Steps .............................................................................................. 41
![Page 3: 2020 iktva Survey](https://reader036.vdocuments.mx/reader036/viewer/2022081514/62aba4273082a42a11528b1c/html5/thumbnails/3.jpg)
2
Saudi Aramco: Public
Introduction The iktva program requires our suppliers to report qualitative and quantitative information
that falls into seven major categories:
Category A: Local Goods, Services, and Depreciation/Amortization;
Category B: Saudi Compensation;
Category C: Training & Development of Saudis;
Category D: Development of Local Suppliers;
Category R: Research & Development;
Category E: Total In-Kingdom Costs;
Other: Revenue, capital investments, female employee, SME spend, etc.
From this data, Saudi Aramco calculates an iktva ratio that approximates the percent of
local content that is contained in the goods and services provided by your Company to
customers located in the Kingdom. The iktva ratio formula is illustrated below:
Remember:
Saudi Aramco requires third party verification of the company’s iktva survey. Visit
www.iktva.sa/auditfirms/ to see the list of our approved auditors.
First time filers will be required to complete the iktva data for three years.
Reports will be submitted annually
• New Filer is due within 7 months after the company’s fiscal year end.
• Repeat Filer is due within 5 months after the company’s fiscal year end.
Self-certification is sufficient for companies that only have out-of-Kingdom operations or
minimal In-Kingdom content (less than 5%).
Please contact Saudi Aramco’s iktva Certification Unit for further guidance at
![Page 4: 2020 iktva Survey](https://reader036.vdocuments.mx/reader036/viewer/2022081514/62aba4273082a42a11528b1c/html5/thumbnails/4.jpg)
3
Saudi Aramco: Public
AHSM is a multinational manufacturing company with operations in
Houston, Dammam and Jeddah. It has two main product lines:
➢ Pressure vessels which are produced in their Dammam factory.
➢ Valves which are produced in Houston and imported to their warehouse and distribution center located in Jeddah. Valve sales are made directly with the Houston company.
AHSM’s controller and director of human resources have been tasked
with completing the company’s iktva survey and have gathered the
following financial and payroll data.
Case Study - Background The purpose of this guide is to walk you through how to complete the survey by using a
hypothetical company, A.H.S. Metalworks (AHSM). The case study will only focus on
completing the survey for a single year, although the methodology will be the same for all
years included in the survey. This guide should be used in combination with the 2020 iktva
Survey Guide which contains more detailed instructions.
REVENUES
AHSM pressure vessel operation in KSA sells to Saudi Aramco and other customers located
in-Kingdom in addition to having several other customers located in the GCC region. In
2020, pressure vessel sales totaled $50 million, broken down as follows:
1. Saudi Aramco $20 million
2. Other KSA customers $28 million, and export sales $2 million.
AHSM also has multiple KSA customers for valves. During 2020, valve sales to Saudi
Aramco were $12 million and other KSA customers were $8 million.
GOODS AND SERVICES
The company spent $7.0 million with OOK suppliers. In addition, it has over 50 in-Kingdom suppliers. However, in addition to Financing Costs and Government Payments, five suppliers made up more than 70% of their in-Kingdom purchases which totaled $21.0 million in 2020. In 2020, there was also a $1.3 million increase in the company’s raw material inventories, $0.9 million of which was related to inventory procured from IK suppliers. Since the company could not identify specifically which IK suppliers the increase related to, AHSM did a high-level adjustment in the IK suppliers table to smooth the variances from year to year. Their total in-Kingdom spend is as follows:
![Page 5: 2020 iktva Survey](https://reader036.vdocuments.mx/reader036/viewer/2022081514/62aba4273082a42a11528b1c/html5/thumbnails/5.jpg)
4
Saudi Aramco: Public
AHSM’s local headcount includes 150 Saudis including one
Saudi employee who works in the Houston factory and 180
expat employees. The total payroll costs, including all benefits
for these employees, were $14.725 million, which included $6
million in total Saudi compensation and $8.725 million in total
expat compensation. The Saudi employees include 15 women
who are paid a total of $450,000.
1. Industrial Fabrication Company $10,000,000
2. SOS Company $1,500,000
3. Government Payments $1,031,500
4. STC $850,000
5. Alseef Catering Company $650,000
6. Financing Costs $500,000
7. Elias Trading Company $450,000
8. All other $6,000,000
$20,981,500
9. Significant Changes in Inventory ($900,000)
$20,081,500
PERSONNEL
TRAINING & DEVELOPMENT
AHSM has an active on-the-job and outside the company training program that was headed
up by an expat employee. Since the company places such a high emphasis on learning,
high potential employees prepare a learning plan and spend 40 hours a year obtaining
some type of training. The estimated cost of this program is $600,000 as follows:
1. Expat Employee $300,000
2. Tuition and class fees $250,000
3. Supplies, facilities, etc. $50,000
$600,000
AHSM trained 100 employees during 2020. 75% of the trained employees were Saudis.
Thus, AHSM estimated that $450,000, or 75% of the costs outlined above, are related to
their Saudi workforce.
In addition to those costs, AHSM spent $35,000 on travel and accommodations for the
Saudi employees to attend courses out-of-Kingdom and donated another $15,000 in
equipment to a local training center which focuses on welding and machining skills.
As a result of the above training related costs, AHSM estimates it spent $500,000 in
training and development of its Saudi workforce in 2020, $25,000 of which was spent for
training targeted at women.
![Page 6: 2020 iktva Survey](https://reader036.vdocuments.mx/reader036/viewer/2022081514/62aba4273082a42a11528b1c/html5/thumbnails/6.jpg)
5
Saudi Aramco: Public
The company also conducts extensive research and
development in its Dammam facility exploring ways where
composites might be used to replace steel in some of their
components. In 2020, they spent $500,000 on R&D. Of this
amount, $300,000 was spent on two expat employees. The
remaining $200,000 was spent on a new technology project in
cooperation with KFUPM.
SUPPLIER DEVELOPMENT
To increase its iktva ratio, AHSM has been actively pursuing local sources of materials and
exploring expanding its Jeddah valve operations to include some manufacturing and
assembly. It hired an expat employee that spends his full-time efforts looking for new
local sources, qualifying and certifying those sources, and overseeing quality and delivery
for the first year. The expat’s total compensation is $200,000 per year. In addition, AHSM
was approached by a startup company that was located next door to its warehouse in
Jeddah. The company, which specializes in machining of metal parts, proposed to
machine AHSM’s cast valve casings instead of having the finished casings imported from
Houston. In order to handle the volume and capacity required, the startup would need
additional equipment and software. After completing a comprehensive cost benefit
analysis, AHSM decided to donate $100,000 of imported new CNC equipment and CAD
software to the startup, bringing the total supplier development costs up to $300,000 for
the year.
RESEARCH & DEVELOPMENT
CAPITAL EXPENDITURES
During 2020, AHSM acquired $3.5 million in property, plant, and equipment to support its
operations in Saudi Arabia. Some of those assets were imported while others were
manufactured locally. Below is a breakdown of the assets acquired during 2020.
1. Building $625,000
2. Building Improvements $100,000
3. Manufacturing Equip. (Imported) $375,000
4. Software (developed OOK) $400,000
5. Vehicles (Imported) $20,000
6. Other Equipment
- Manufactured IK $900,000
- Imported $1,080,000
$3,500,000
ASSIGNING COSTS TO SAUDI ARAMCO
Since Aramco is not AHSM’s only customer, the company will need to decide how it will
determine its costs to be assigned to Saudi Aramco. AHSM has two choices: 1) Revenue
Ratio and 2) Direct Costing. AHSM’s controller believes that the Revenue Ratio is the most
appropriate and easiest methodology.
![Page 7: 2020 iktva Survey](https://reader036.vdocuments.mx/reader036/viewer/2022081514/62aba4273082a42a11528b1c/html5/thumbnails/7.jpg)
6
Saudi Aramco: Public
General Instruction All financial amounts should be reported in USD.
Amounts reported should correspond to the company’s fiscal year end audited
financial statements.
Revenues and costs reported in the iktva survey should be consistent with the
revenues and costs the company would report utilizing International Financial
Reporting Standards (IFRS) or Generally Accepted Accounting Principles (GAAP) in
Saudi Arabia.
Amounts should not be double counted. For example, if Training Costs are listed,
these costs should not also be included in Goods and Services or Payroll.
In most instances, companies are required to submit an iktva survey covering all of
its in-Kingdom (IK) operations and revenue. However, Saudi Aramco may ask some
suppliers to file separate iktva surveys if they operate in multiple segments.
Companies with partially owned Joint Ventures (JVs), affiliates and subsidiaries
that file a consolidated return will only recognize their ownership share of the
related companies’ results.
For consolidated submissions, intercompany transactions between related entities
should be eliminated.
Assumptions and calculation methodologies utilized should be consistent with prior
years and with the guidelines provided by Saudi Aramco.
There are two columns for data for each year in Section 2. iktva Score and Section
11. Revenue: one column is for Saudi Aramco only and the other is for all in-
Kingdom customers, including Saudi Aramco, and exports.
Amounts reported in the iktva surveys need to be supported by appropriate and
auditable documentation similar to what is used in financial audits.
Survey fields/cells with a shaded background contain formulas and calculations
derived from the input fields and should not be changed. On the other hand,
fields/cells that contain a white background are for data input.
IMPORTANT: The Excel survey tool has been password protected to maintain the
integrity of the formulas used to calculate and analyze your company’s iktva data.
All data input cells necessary to complete the survey are unlocked. This password
protection feature should not be tampered with. Any Excel files submitted without
the password protection in place will not be accepted and the company will need
to refile its survey using the approved Excel file.
![Page 8: 2020 iktva Survey](https://reader036.vdocuments.mx/reader036/viewer/2022081514/62aba4273082a42a11528b1c/html5/thumbnails/8.jpg)
7
Saudi Aramco: Public
The correct survey tool should be used (First Time or Repeat Filer version) and can
be found at: https://www.iktva.sa/iktva-package/
![Page 9: 2020 iktva Survey](https://reader036.vdocuments.mx/reader036/viewer/2022081514/62aba4273082a42a11528b1c/html5/thumbnails/9.jpg)
8
Saudi Aramco: Public
1
Section 1: Company Information
![Page 10: 2020 iktva Survey](https://reader036.vdocuments.mx/reader036/viewer/2022081514/62aba4273082a42a11528b1c/html5/thumbnails/10.jpg)
9
Saudi Aramco: Public
Page 1: Company Information Page 1 outlines general company information. In this page, AHSM is required to provide:
1) Company’s name, address, contact information for the CEO, CFO and the main point
of contact for iktva related matters. In addition, company’s fiscal year end,
commercial registration number(s), and Saudi Aramco vender identification
number(s), if applicable.
![Page 11: 2020 iktva Survey](https://reader036.vdocuments.mx/reader036/viewer/2022081514/62aba4273082a42a11528b1c/html5/thumbnails/11.jpg)
10
Saudi Aramco: Public
2) A brief description of the goods and services provided by the company.
3) Company’s progress to support the iktva program during the last year.
4) A List of global geographical locations of the company’s operations that support
Saudi Aramco or other KSA customers.
![Page 12: 2020 iktva Survey](https://reader036.vdocuments.mx/reader036/viewer/2022081514/62aba4273082a42a11528b1c/html5/thumbnails/12.jpg)
11
Saudi Aramco: Public
5) A list of the company’s related entities, including percentage ownership and
vendor identification number if applicable, included in the survey.
6) Local Executives Signature Section:
When the survey is finalized, the PDF version to be included in the audit report will
need to be signed by both the AHSM’s CEO/General Manager and its top financial
executive.
![Page 13: 2020 iktva Survey](https://reader036.vdocuments.mx/reader036/viewer/2022081514/62aba4273082a42a11528b1c/html5/thumbnails/13.jpg)
12
Saudi Aramco: Public
Section 2 iktva Score
2
![Page 14: 2020 iktva Survey](https://reader036.vdocuments.mx/reader036/viewer/2022081514/62aba4273082a42a11528b1c/html5/thumbnails/14.jpg)
13
Saudi Aramco: Public
Section 2: iktva Score The Section contains all of the data needed to calculate AHSM’s iktva results. It includes
summary data for all seven Categories (A, B, C, D, E, R, and X) required in the formula.
Nothing is required to be input into this section by AHSM. All of the amounts in Section 2
are derived from the other tabs that AHSM will input as it completes its survey. We will
now walk you through the remaining sections.
Section 2: iktva Score Saudi Aramco Total KSACategory A: Goods & Services, Depreciation, and Amortization: 12/31/2020 12/31/2020
Goods and Services (Section 3) $4,000,000 $10,000,000
Depreciation (Section 6) $94,800 $237,000
Expat Compensation (Section 4) $1,184,000 $2,960,000
Total Category A $5,278,800 $13,197,000
Category B: Saudi Compensation (Section 4) $2,400,000 $6,000,000
Category C: Training and Development of Saudis (Section 7) $200,000 $500,000
Category D: Supplier Development (Section 8) $600,000 $1,500,000
Category R: Research and Development (Section 9) $1,000,000 $2,500,000
Total iktva Contribution $9,478,800 $23,697,000
Category E: Total In Kingdom Costs
Local Costs (Section 12) $18,000,000 $45,000,000
Out-of-Kingdom Costs (Section 11) $12,000,000 $20,000,000
Total Category E $30,000,000 $65,000,000
Pre-export iktva ratio 32% 36%
Category X: Export Revenue (Section 11) 3% 3%
iktva Score (%) 34% 39%
![Page 15: 2020 iktva Survey](https://reader036.vdocuments.mx/reader036/viewer/2022081514/62aba4273082a42a11528b1c/html5/thumbnails/15.jpg)
14
Saudi Aramco: Public
Section 3: In-Kingdom Suppliers
3
![Page 16: 2020 iktva Survey](https://reader036.vdocuments.mx/reader036/viewer/2022081514/62aba4273082a42a11528b1c/html5/thumbnails/16.jpg)
15
Saudi Aramco: Public
Section 3: In-Kingdom Suppliers This section captures the company’s IK spend for Goods and Services with its supply chain.
Goods and Services is not meant to be limited to costs used to derive gross margins. In
addition to expenditures that would normally be included in Cost of Goods Sold, Cost of
Sales, or Cost of Services, the Goods and Services category is intended to capture purchases
from all IK suppliers regardless of how they are classified on an income statement. AHSM
noted that most of its spend with its IK supply chain could be included in this Section.
AHSM sorted its IK suppliers in descending order based on amounts purchased for the most
recent year reported.
The company had to input the following information into the table:
Supplier’s commercial registration number.
Supplier’s name.
Small and Medium Sized Enterprise (SME) designation. From the drop-down
menu, select if the supplier is an SME or not. SMEs have been defined as
any enterprise with an independent commercial registration that has less
than 250 employees, and less than $53 million in revenue.
➢ Production costs ➢ Selling, marketing, and
other administration and operating costs
➢ Financing charges ➢ Insurance ➢ Government payment
(taxes, zakat, customs,
duties, non-refundable VAT,
iqama, visa, and dependent
fees, etc.)
Include
➢ Contract and government
related penalties
➢ Intercompany costs for
consolidated entities
➢ Cost included in other
sections
➢ Capital expenditures
➢ Non-cash transactions (e.g.
provisions, FX gains and
losses)
➢ Refundable VAT
Exclude
![Page 17: 2020 iktva Survey](https://reader036.vdocuments.mx/reader036/viewer/2022081514/62aba4273082a42a11528b1c/html5/thumbnails/17.jpg)
16
Saudi Aramco: Public
A brief but descriptive description of the types of goods and/or services
provided.
From the drop-down menu, considering the types of goods and services
provided, select the correct segment for that supplier.
For materials, from the drop-down menu, select Locally Produced or
Imported.
If you have the suppliers actual certified iktva ratio approved by Saudi
Aramco, you can input it under Certified iktva Ratio column. Otherwise,
leave it blank.
Segment iktva ratio. The default setting for this field relies on the inputs
for “Business Segment” and for materials “Procured Locally or Imported”.
This field will be automatically populated after selecting the supplier’s
segment. On the other hand, the ratio will be adjusted to 0% for materials
if they are imported except for car and tire agencies.
Selected iktva ratio will be either the Certified iktva Ratio if it has been
input or the Segment iktva Ratio.
Total consumption/purchases for the year for that supplier.
Saudi Aramco’s portion. Since the company is using the Revenue Ratio to
allocate costs to Saudi Aramco, nothing needs to be input. Revenue Ratio
is the default methodology built into the survey. If AHSM had selected
Direct Costing, then it would update the percentages in this column to
reflect actual assignment of costs to Saudi Aramco.
The IK suppliers table also includes three predefined rows that are designated for a
specific grouping of expenses, not for a specific supplier.
- Significant Changes in Inventory and Accruals: for many companies, annual supplier
invoicing data is readily available, but consumption data may or may not be
available, making it more difficult to complete the IK suppliers table on an accrual
basis. If end of year changes to inventories and other accruals are relatively small,
companies can ignore the changes and report purchasing data. Otherwise, the
purchasing data should be adjusted to reflect timing differences and/or changes in
inventory and other balance sheet accounts. This row should include significant
changes in inventory and accruals which you are unable to associate with a specific
supplier. The iktva ratio used on this amount will be the weighted average iktva
ratio generated by the listed suppliers for that year.
- Government Payments: include taxes, zakat, withholding taxes, customs, duties,
nonrefundable VAT, expat related fees, etc. They are assigned an iktva ratio of
100%.
- Financing Costs: include any interest and finance changes paid to local banks,
lending institutions, lessors, etc. It does not include principal payments made to
these entities. Financing costs receive an iktva ratio of 70%.
![Page 18: 2020 iktva Survey](https://reader036.vdocuments.mx/reader036/viewer/2022081514/62aba4273082a42a11528b1c/html5/thumbnails/18.jpg)
17
Saudi Aramco: Public
These three pre-defined rows are highlighted below.
Once the by-supplier detail totals 70% of the company’s IK spend, the company can stop
adding suppliers to the list. Any remaining IK purchases can be listed as “Other” (see last
line on the table highlighted below) and the company can use an iktva ratio of 100% for
this line.
Alternatively, when the company reaches 50 suppliers, it can also stop and add the
remaining IK spend in “Other.” However, if the supplier detail provided is less than 70%,
then the iktva ratio applied to the Other row will be reduced accordingly.
In Section 3, AHSM will list its top five suppliers in descending order. These five suppliers
along with financing costs, changes in inventory, and government payments, will make up
70% of AHSM’s total purchases. AHSM will add financing costs, changes in inventory, and
government payments at the bottom of the In-Kingdom Suppliers table (see row 58 - 60),
then include $6.0 million of other IK purchases on the last line – “Other”. The $7 million
spent with OOK suppliers is excluded.
Next, AHSM will describe the types of goods or services procured from those suppliers,
complete the SME designation field, select the proper segment, and then note whether
the materials are imported or produced locally. The iktva ratios will automatically
populate once AHSM completes the business segment field. However, regardless of the
chosen segment, if the provided material is imported, the iktva ratio will be adjusted to
0% except for car and tire agencies. AHSM will use the populated iktva ratios as it doesn’t
have the actual iktva ratios for its suppliers.
As can be seen from the table above, once the suppliers’ iktva ratios are applied, AHSM will
receive $11.5 million of IK credit for its $20.1 million purchases of IK goods and services.
The $11.5 million IK portion for Total KSA and the $4.6 million for Saudi Aramco will
automatically update the appropriate lines in Section 2: iktva Score.
![Page 19: 2020 iktva Survey](https://reader036.vdocuments.mx/reader036/viewer/2022081514/62aba4273082a42a11528b1c/html5/thumbnails/19.jpg)
18
Saudi Aramco: Public
Remember:
OOK suppliers and any intercompany supply sources that are consolidated into the iktva
survey must be excluded.
If significant, you may need to adjust the supplier invoicing data for timing differences
and/or changes in inventory or base this table on consumption, not purchases.
If a supplier provides goods or services that fit into multiple segments with different iktva
rates, you should assign the segment and iktva score that represent the majority of the
goods/services provided, or list the supplier on two separate lines.
Completing government payments and financing costs is not required in some cases. If these
costs are not part of the 70% detail of the total IK goods and services, they can be added
to the other row.
The details for the “Other” row should be readily available for auditing purposes.
![Page 20: 2020 iktva Survey](https://reader036.vdocuments.mx/reader036/viewer/2022081514/62aba4273082a42a11528b1c/html5/thumbnails/20.jpg)
19
Saudi Aramco: Public
Section 4: Labor
4
![Page 21: 2020 iktva Survey](https://reader036.vdocuments.mx/reader036/viewer/2022081514/62aba4273082a42a11528b1c/html5/thumbnails/21.jpg)
20
Saudi Aramco: Public
Section 4: Labor
Headcount and Job Categories
In this section, the company will categorize its total employment base into one of 10
categories according to the International Standard Classification of Occupations.
To complete this section, AHSM started with its organization chart and determined, by job
type/description, which of 10 Job Categories listed in was appropriate. After categorizing
and splitting its employee base into Saudi and expat components for each position, the HR
Director checked the year-end payroll report to ensure the numbers were consistent. In
addition, she added the Saudi expat who works in their OOK operations.
Compensation
The costs reported in Section 4 include such items as salaries, wages, bonuses,
commissions, overtime, and benefits. Benefits would include car allowances,
transportation, healthcare, end of service awards, and other compensation related perks
provided to the company’s employees. The company will provide total compensation
expense broken down between Saudi and expat compensation.
As part of Section 4, AHSM’s HR Director completed the Compensation chart, dividing
AHSM’s total compensation into two categories – Saudi including the Saudi expat
($6,000,000) and Expats ($8,725,000). Since AHSM has previously claimed some of the
Expats’ compensation in other sections, these same costs could not be included here.
Section 7: Training & Development ($300,000 x 75%) $225,000
Section 8: Supplier Development $200,000
Section 9: Research & Development $300,000
Total $725,000
As a result, AHSM deducted $725,000 from the Expat Compensation total and reported $8M
in Section 4. Since AHSM is using the Revenue Ratio to assign costs to Saudi Aramco, the
Saudi Aramco Portion% was not overridden.
![Page 22: 2020 iktva Survey](https://reader036.vdocuments.mx/reader036/viewer/2022081514/62aba4273082a42a11528b1c/html5/thumbnails/22.jpg)
21
Saudi Aramco: Public
The compensation information AHSM input in Section 4 will automatically update Section
2: iktva Score for both Expat Compensation and Saudi Compensation.
Remember:
The headcount along with compensation data comes directly from the
company’s fiscal year-end payroll reports.
Compensation costs cannot be included in more than one section. For
example, if the company has an expat dedicated to training of Saudis, it
would be advantageous for the company to exclude his/her compensation
costs from Section 4: Labor and instead include 100% of the expat
compensation costs in Section 7: Training & Development.
Excessive Owner/Management Remuneration should not be included in this
section. Compensation which is in effect dividends should be excluded from
the survey.
Saudi Expats (Saudi Nationals working outside the Kingdom) should be
reported in this section.
Saudi Aramco costs can be allocated using Revenue Ratio or Direct Costing
methodologies.
In the example above, the revenue ratio (40%) is being used.
![Page 23: 2020 iktva Survey](https://reader036.vdocuments.mx/reader036/viewer/2022081514/62aba4273082a42a11528b1c/html5/thumbnails/23.jpg)
22
Saudi Aramco: Public
Section 5: Capital Expenditures
5
![Page 24: 2020 iktva Survey](https://reader036.vdocuments.mx/reader036/viewer/2022081514/62aba4273082a42a11528b1c/html5/thumbnails/24.jpg)
23
Saudi Aramco: Public
Section 5: Capital Expenditures The iktva survey includes capital expenditures that the company has made for its IK
operations. The details for its annual capital expenditures are listed in Section 5. Repeat
filers only need to provide detail for one year. First time filers should provide at least three
years of capex data or optionally they can provide up to 12 years of capex history.
To complete the table, the company will need to know asset descriptions, their costs, and
whether or not those assets were manufactured locally. For assets manufactured IK, 100%
of the acquisition cost will be allowed for iktva depreciation purposes. However, only 20%
of the cost will be allowed for imported fixed assets.
Please note that disposals should only be deducted if included in previous years’ iktva
capital expenditures. Disposition of assets that have not previously been reported should
be excluded. The amount deducted will be the net book value after allowing for
depreciation on a 10-year straight-line basis. Disposals are netted with acquisitions by Asset
Class to be reported in the iktva survey.
As mentioned earlier, during 2020 AHSM acquired $3.5 million in property, plant, and
equipment to support its operations in Saudi Arabia. AHSM reviewed its fixed asset
register and categorized each asset as either being manufactured IK or imported. Next
AHSM categorized its assets into the Asset Classes listed in Section 5. Having done this,
AHSM is ready to complete Section 5. Below is a breakdown of the assets acquired during
2020 and how they would appear in the table.
1. Building $625,000
2. Building Improvements $100,000
3. Manufacturing Equip. (Imported) $375,000
4. Software (Imported) $400,000
5. Vehicles (Imported) $20,000
6. Other Equipment
- Manufactured IK $900,000
- Imported $1,080,000
$3,500,000
![Page 25: 2020 iktva Survey](https://reader036.vdocuments.mx/reader036/viewer/2022081514/62aba4273082a42a11528b1c/html5/thumbnails/25.jpg)
24
Saudi Aramco: Public
Remember:
Major refurbishments and repairs, if capitalized for financial reporting purposes,
should be included.
Exclude construction in progress or assets that have not yet been placed in service.
Exclude assets that are not utilized in operating the business including land that is
purchased for future use.
Disposals are netted with acquisitions by Asset Class to be reported in the iktva
survey.
A capital-intensive company may choose to go back 12 years in completing the
section. At a minimum, first time filers should include capital asset information
for at least three years.
![Page 26: 2020 iktva Survey](https://reader036.vdocuments.mx/reader036/viewer/2022081514/62aba4273082a42a11528b1c/html5/thumbnails/26.jpg)
25
Saudi Aramco: Public
Section 6: Depreciation and Amortization
6
7
![Page 27: 2020 iktva Survey](https://reader036.vdocuments.mx/reader036/viewer/2022081514/62aba4273082a42a11528b1c/html5/thumbnails/27.jpg)
26
Saudi Aramco: Public
Section 6: Depreciation and Amortization Section 6 includes a portion of the cost of fixed or other tangible and intangible long terms
assets that qualifies to be included in iktva. The Section is automatically populated based
on capital and intangible expenditure details provided in Section 5: Capital Expenditures
(see below).
For estimated useful lives, we apply a very simplified method. All of the assets acquired
that year, even including land which is not normally depreciated, are depreciated or
amortized over a 10-year life regardless of their actual useful lives.
The annual depreciation calculated in Section 6 will update the Depreciation line in Section
2: iktva Score.
In AHSM’s case, the $2 million IK allowance covering its capital expenditures for 2020 listed
in Section 5 will be depreciated over 10 years. The total depreciation for 2020, resulting
from the prior 10 years of capital expenditures, will populate the required total in Section
2.0.
Note:
Repeat filers will input the In-Kingdom Allowance for years 2011 to 2019 from their prior
year certified survey.
![Page 28: 2020 iktva Survey](https://reader036.vdocuments.mx/reader036/viewer/2022081514/62aba4273082a42a11528b1c/html5/thumbnails/28.jpg)
27
Saudi Aramco: Public
Section 7:, 8:, 9: Training & Development, Supplier
Development, and R&D
7, 8, 9
![Page 29: 2020 iktva Survey](https://reader036.vdocuments.mx/reader036/viewer/2022081514/62aba4273082a42a11528b1c/html5/thumbnails/29.jpg)
28
Saudi Aramco: Public
Section 7: Training & Development This section has two main components: 1) trained headcount and 2) training and
development costs. AHSM spent $650,000 on its training program. However, it can only
claim $500,000 – the portion which is directly related to training of Saudis and its
contribution to the training center. Keep in mind that the Expat trainer’s compensation
reported in this section should be deducted from the Expat Compensation amount reported
in Section 4: Labor. To complete this section AHSM’s HR manager listed the types of
training, costs incurred, and number of Saudis trained during the year.
Remember:
OOK costs related to Training & Development of Saudis can be included.
Training & Development cost can include travel and accommodations, training
courses, annual software license fees related to training, outside training
consultants, expat compensation related to training Saudis, technical training
academies, internship, co-op sponsorship costs as well as donations and
contributions to training academies and institutes.
Reasonable estimates are accepted. However, if high level assumptions are
used resulting in substantial iktva credit, an approval from Saudi Aramco’s
iktva Certification Unit for those assumptions must be obtained before
submitting the survey.
Any software donations claimed in this category should not exceed 1% of the
total cost (Category E).
Saudi Aramco costs can be allocated using Revenue Ratio or Direct Costing
methodologies.
In the example above, the revenue ratio (40%) is being used.
![Page 30: 2020 iktva Survey](https://reader036.vdocuments.mx/reader036/viewer/2022081514/62aba4273082a42a11528b1c/html5/thumbnails/30.jpg)
29
Saudi Aramco: Public
Section 8: Supplier Development Supplier Development Costs include costs incurred to increase the performance, skills and
capabilities of local suppliers. Such costs include activities such as supplier training,
supplier certification programs, cross-company design for manufacturability initiatives,
quality control inspections, and qualification support.
In Section 8, AHSM will describe the types of activities performed, the companies
benefited and the costs associated with these activities. AHSM had one expat employee
costing $200,000 that was dedicated to local supplier development activities. In addition,
it gave a local supplier $100,000 of imported CNC equipment and CAD software.
Since AHSM obtained prior approval from Saudi Aramco to include the donations-in-kind of
CNC equipment and CAD software, the full $300,000 AHSM spent on local sourcing and
supplier development activities can be included even though it includes expat
compensation and imported equipment costs. The Expat employee’s compensation
reported in this section should be deducted from the Expat Compensation amount
reported in Section 4: Labor.
Based on this information, AHSM completes Section 8 as follows:
Notice that the company received a bonus for its Supplier Development spend. For every
dollar spent on this activity, it received five dollars of Supplier Development credit. After
applying the bonus factor, the total from Section 8 will populate the required amounts in
Section 2: iktva Score.
Remember:
OOK costs related to Supplier Development can be included.
Reasonable estimates are accepted. However, if high level assumptions are used
resulting in substantial iktva credit, an approval from Saudi Aramco’s iktva
Certification Unit is required before submitting the survey.
Any donations-in-kind claimed in this category should be approved by Saudi
Aramco’s iktva Certification Unit in advance of filing the survey.
Bonus factor is only applied to 2019 and 2020.
Saudi Aramco costs can be allocated using Revenue Ratio or Direct Costing
methodologies.
In the example above, the revenue ratio (40%) is being used.
![Page 31: 2020 iktva Survey](https://reader036.vdocuments.mx/reader036/viewer/2022081514/62aba4273082a42a11528b1c/html5/thumbnails/31.jpg)
30
Saudi Aramco: Public
Section 9: In-Kingdom Research &
Development Section 9 includes costs related to performing research and development activities in the
Kingdom. It should contain the total amount of annual operating expenses related to
research and development (R&D) activities conducted IK. R&D costs can include expat
compensation as well as IK and OOK goods and services.
AHSM will list the activities related to performing research and development along with
the costs associated with these activities. You will recall that AHSM spent $500,000 on
R&D. Of this amount, $300,000 was spent on two expat employees. The remaining
$200,000 was spent on a new technology project in cooperation with KFUPM. Section 9
would be completed as follows:
Similar to Section 8: Supplier Development, a bonus factor (up to 5 percentage points of
iktva credit) was automatically calculated for AHSM’s R&D spend. After applying the
bonus factor, the total from Section 9 will populate the required amounts in Section 2:
iktva Score.
Remember:
The types of costs that can be classified as R&D should be consistent with guidance
provided by IFRS. International Accounting Standard 38 Intangible Assets offers the
following definitions:
Research is original and planned investigation undertaken with the prospect of gaining
new scientific or technical knowledge and understanding.
Development is the application of research findings or other knowledge to a plan or
design for the production of new or substantially improved materials, devices, products,
processes, systems or services before the start of commercial production or use.
Corporate allocations from the company’s R&D centers located outside the Kingdom
do not qualify.
OOK costs related to IK Research & Development can be included.
Saudi Aramco costs can be allocated using Revenue Ratio or Direct Costing
methodologies.
In the example above, the revenue ratio (40%) is being used.
![Page 32: 2020 iktva Survey](https://reader036.vdocuments.mx/reader036/viewer/2022081514/62aba4273082a42a11528b1c/html5/thumbnails/32.jpg)
31
Saudi Aramco: Public
Section 10: Female Employment
10
![Page 33: 2020 iktva Survey](https://reader036.vdocuments.mx/reader036/viewer/2022081514/62aba4273082a42a11528b1c/html5/thumbnails/33.jpg)
32
Saudi Aramco: Public
Section 10: Female Employment In this section, the company provides both headcount and cost information related to its
female employees. Costs and headcounts related to Saudi females will be a subset of the
information provided in Section 4: Labor and Section 7: Training & Development.
During 2020, AHSM employed 15 Saudi women with a total compensation of $450,000 and
provided training to eight of them at a cost of $25,000. AHSM would complete this section
as follows:
![Page 34: 2020 iktva Survey](https://reader036.vdocuments.mx/reader036/viewer/2022081514/62aba4273082a42a11528b1c/html5/thumbnails/34.jpg)
33
Saudi Aramco: Public
Section 11: Revenue
11
![Page 35: 2020 iktva Survey](https://reader036.vdocuments.mx/reader036/viewer/2022081514/62aba4273082a42a11528b1c/html5/thumbnails/35.jpg)
34
Saudi Aramco: Public
Section 11: Revenue The revenue section captures revenue generated from goods and services provided to Saudi
Aramco, other KSA customers and exports from In-Kingdom operations.
In AHSM’s case, total revenue is $70 million, including $50 million from pressure vessels and
$20 million from valves. During 2020, Saudi Aramco sales included $20 million in pressure
vessels and $12 million in valves. The company also exported $2 million to various other
GCC customers. Based on this information, Section 11 would be completed as follows:
Remember:
For partially owned entities of the company, partial credit is given.
Saudi Aramco Revenue: • Subset of Total KSA Revenue.
• Indirect revenue through agents and EPCs should be included.
• Saudi Aramco’s partially owned subsidiaries and JVs should be excluded.
• Should be confirmed with Saudi Aramco through [email protected].
To qualify as export revenue: • The end user of the goods or services must be located outside KSA.
• The economic activity for the transaction(s) involves the transfer of goods to or the
rendering of services for these end users.
• Exported goods and services that are resold to KSA based customers should be excluded.
Decide on which methodology will be used to allocate costs to Saudi Aramco:
• Revenue Ratio [Default setting in the survey]
Saudi Aramco Revenue from IK Operations x Total KSA Costs
Total KSA Revenue from IK Operations + Exports
In the example above, the revenue ratio is (40%)
• Direct Costing
![Page 36: 2020 iktva Survey](https://reader036.vdocuments.mx/reader036/viewer/2022081514/62aba4273082a42a11528b1c/html5/thumbnails/36.jpg)
35
Saudi Aramco: Public
Section 12: Reconciliation Table
12
![Page 37: 2020 iktva Survey](https://reader036.vdocuments.mx/reader036/viewer/2022081514/62aba4273082a42a11528b1c/html5/thumbnails/37.jpg)
36
Saudi Aramco: Public
Section 12: Cost Reconciliation The main function of the Cost Reconciliation table is to show the reconciliation of the
company’s costs from its audited financial statements to the costs included in the iktva
survey. The format of the Reconciliation Table can be modified to meet the company’s
specific situation. Rows can be added/deleted and descriptions can be changed.
However, those rows that are blue in color must be included. These cannot be overridden
or changed since they are numbers which should agree with other sections of the iktva
survey. If the totals do not agree, an error message will appear.
iktva related costs
from your company’s
OOK related entities
might qualify for
iktva
![Page 38: 2020 iktva Survey](https://reader036.vdocuments.mx/reader036/viewer/2022081514/62aba4273082a42a11528b1c/html5/thumbnails/38.jpg)
37
Saudi Aramco: Public
AHM used its 2020 audited financial statements to prepare the table above. From its
income statement, AHSM listed the total costs for 2020 as per their local books and it
included additional costs that are related to the Saudi expat employee. Then, it
eliminated all the disallowable costs for Section 3: IK Suppliers. Since AHSM is submitting a
consolidated survey, it excluded the intercompany transactions with its overseas sister
company. In addition, it eliminated all other disallowable costs and costs recognized in
other sections in the iktva survey. And finally, to make sure that the reconciliation table
was done correctly, AHSM agreed all the items in blue under the eliminations section with
the corresponding sections within the survey. In addition, AHSM matched the $20.1 million
IK purchases to a detailed listing it prepared for its auditor.
Note:
The eliminations should be listed as deductions, or negative numbers.
A detailed listing supporting the total G&S purchased from IK suppliers should be
prepared and provided to the auditors.
![Page 39: 2020 iktva Survey](https://reader036.vdocuments.mx/reader036/viewer/2022081514/62aba4273082a42a11528b1c/html5/thumbnails/39.jpg)
38
Saudi Aramco: Public
Section 13: Possible Inquiries and Auditor
Reminders
13
![Page 40: 2020 iktva Survey](https://reader036.vdocuments.mx/reader036/viewer/2022081514/62aba4273082a42a11528b1c/html5/thumbnails/40.jpg)
39
Saudi Aramco: Public
Possible Enquiries As part of Saudi Aramco’s quality review process for iktva surveys, many times we will revert
to the company with inquiries about the survey and results and wait for responses before
finalizing and issuing the company’s iktva score. The Possible Enquiries tab is designed to
facilitate Saudi Aramco’s quality review process and accelerate the survey finalization
process. This tab lists some of the potential questions that we might ask. By providing
answers as part of the survey submission process, our hope is to be more efficient and issue
the iktva summary much quicker.
AHSM reviewed the questions that were posed and offered the following explanations.
Auditor Reminders The purpose of this tab is to facilitate the auditing process. The information contained on
this tab is directed toward the auditing firm selected to audit the company’s survey. AHSM
does nothing on this page.
![Page 41: 2020 iktva Survey](https://reader036.vdocuments.mx/reader036/viewer/2022081514/62aba4273082a42a11528b1c/html5/thumbnails/41.jpg)
40
Saudi Aramco: Public
Final Steps Submitting iktva Survey
14
![Page 42: 2020 iktva Survey](https://reader036.vdocuments.mx/reader036/viewer/2022081514/62aba4273082a42a11528b1c/html5/thumbnails/42.jpg)
41
Saudi Aramco: Public
Final Steps Submitting the Company’s Survey
Once AHSM completed its survey and received the report from its auditor, it submitted its
survey through the website (https://www.iktva.sa/survey-submissions/).
The company included the following:
A PDF of the full auditor’s report.
A copy of the Management Representation Letter provided to the auditor. The
Management Representation Letter should be signed by the company’s top
operational and financial officers and must include the company’s stamp. No
submissions will be accepted without the signatures or stamp. This letter was
already included in the audit report so AHSM had already taken care of this.
A copy of the survey tool/Excel file.
Next, AHSM waited to hear back from Saudi Aramco’s iktva Certification Unit (ICU). ICU
performs a thorough quality assurance review and will either send the finalized iktva
summary or revert back with more clarifying questions.
![Page 43: 2020 iktva Survey](https://reader036.vdocuments.mx/reader036/viewer/2022081514/62aba4273082a42a11528b1c/html5/thumbnails/43.jpg)
42
Saudi Aramco: Public
Presentations
Survey Guide
Visit our website www.iktva.sa for additional information.