accounting assessment for oil&gas

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Accounting Optimization

Assessment for Oil and GasSAP Business Transformation Services Oil & Gas10th August 2012


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2012 SAP AG. All rights reserved. 2

Agenda

Basic Knowledge about Upstream Accounting

Introduction to the service

Key Trends and Business Needs

Parallel operation of JVA and New GL Customer Value Proposition and Expected Business Benefits

Project Approach and Planning

Business Process Library Joint Venture Accounting

Wrap up


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Agenda







Wrap up


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What is Upstream Accounting?

In the oil and gas industry, certain ventures are considered high risk, demanding extensivecapital investment and a long payback period. To minimize risks, companies developpartnerships called joint ventures

A joint venture consists of an operating partner (operator) and one or more non-operatingpartners, who combine monetary or personnel resources to share a projects expenses andrevenues.

The operator manages the venture, arranges venture activities, and maintains accountingrecords. The operator remits venture expenses, collects revenues, and distributes these to the

partners, according to their ownership shares.

This process is known as Joint Venture Accounting (JVA).


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A typical process flow of Joint venture Accounting shows

that most of the processes are period-end related

Foreign Curr.

Valuation

Allocations

Parent Company

Overhead

Suspense

Processing

Equity

adjustment

Cutback

Cash CallReclass.

Billing

Bankswitching

Partner

netting

Reporting Daily

Transactions&

Cash Call

End of dailytransactionsClosure of period


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Agenda







Wrap up




Accounting/Controller departments of companies in

the Oil & Gas industry face an increasing demand for

improving their accounting effectiveness. However,

most of the current system landscapes do not fulfill

future complex accounting requirements. Multiple

accounting principles (IFRS, US-GAAP, HGB, etc.)and increased needs for accelerated period-end

closing are just two examples of current challenges.

This service is designed to pick up those challenges

by reviewing the accounting processes and

implemented SAP functionalities/ modules. The result

is an overview of areas for improvement (consideringthe latest SAP product developments and best

practice), as well as a road map (proposed way

forward) for implementing those improvements.



Enablement

New General Ledger

Our service addresses the current business needs

and enables further effectiveness within Accounting

Business needs

KPI

Business challenges

Business needs and its enablement

SAP Business Process Library / Best Practice



Agenda







Wrap up



Missing automatic reconciliation between JVA and

New GL leads to inconsistencies

Current situation

General Ledger is updated in a

flexible, transparent, configurable

way on an extended set of

characteristics

JVA update is controlled by the

JVA Integration Manager:

Not flexible, intransparent,

historically grown logic

Acting like a black box

Not reconcilable with GeneralLedger due to GJ90/GJ91-

mechanism and own CO

integration based on KALCCUSTOMDATABASE

FAGLFLEX

Accounting Interface

Financial Supply Chain FI Sub ledgersLogistics / HR

JVA InterfaceJVA Interface

S/L-Interface

JV DATA

JVT01BILLING

JVT02

JVA-

Integration-

Manager

JVA

Interface

New GL in ERP

Ledger Company Segment Profit Center ...

Missing

Reconciliation

Illustrated Problem statementReconciliation between JVA and New GL



That inconsistency is a result of technical

restrictions on parallel use of JVA and New GL

Profit Center Accounting is not reconciled with JVA

Document split in New GL and JVA are not fully compatible

Closing activities are changed within the New GL

CO-FI reconciliation report no longer running (after NewGL activation, KALC cannot be executed anymore)

new currency valuation transaction (does not containventure information)

Only postings into the leading ledger will update JVA

Postings in non-leading ledgers will not update JVA

As a result, parallel valuation based on different GAAPs canonly be reflected in JVA by using the account solution

Reporting on realized and unrealized exchange ratedifferences is not reconciled between JVA and New GL

FI-JVA integration for discount and realized exchange ratedifferences depend on FI-CO integration and based on COcost elements

Reconciliation

Closing

Realized &

Unrealized

Exchange rate

differences

Parallel

Valuation

Current restrictions



Up to now, period-end closing procedures require

additional reconciliation

Foreign Currency Valuation

Cost Transfers

Cost Allocation & Settlement

Overhead Calculations

Equity Adjustments

Cutback

Joint Venture Close

Partner Netting Final Settlement

Corporate Close

Billing

Conflicts

Foreign currency valuation

Reporting on realized and unrealized

exchange rate differences are not

automatically reconciled between JVA and

New GLCost transfers, allocations & settlements

Automated reconciliation from CO to FI

doesnt contain venture information and

will not be triggered by change of venture

Equity adjustments

JVA specific operations are not integratedwith FI. (Suspense, Equity Change, and

Farm In/Out will create S/L documents

only)

JV and Corporate close

Reporting on venture basis in JVA only

3

4

1

2

3

1

2

4

Typical JVA period-end processes

4



With EhP6, greater reporting enhancements in

New GL are introduced

Enhancements

Adjustment of New GL document split and recording

to provide the General Ledger with relevant JVA

fields:

Venture name, Equity Group and Recovery Ind.

Adjustment of New GL CO to FI real-timereconciliation to support cross-venture CO postings

Adjustment of JVA processes when New GL Split is

activated, e.g. Foreign Currency Valuation

Customer benefits

Improved reconciliation between

JVA and General Ledger (e.g. RXD,

UXD, Profit Center Accounting)

Enhanced reporting capabilities inGeneral Ledger using JVA entities

(Venture, Equity Group and

Recovery Indicator)

Enhancements in EhP6



Agenda







Wrap up



What a customer can expect from this assessment

The optimization assessment identifies and analysis pain points and hidden values. As a result, SAP

provides a roadmap to visualize how to realize the identified improvement potential.

SAP Upgrade benefit assessment

New General Ledger implementation benefit assessment Business process and reporting improvement/automation assessment

Role and Authorization assessment

Processimprovements

Enterprise Architecture

System Architecture

Business Processes

System

harmonization

Other SAP modules

HANARoadmap

Further training requirements

Work effectiveness through business process simplificationHuman Capital

ValueIdentification



Reporting One version of the truth achieved through

one single data source

Creation of balances based on Profit

Center and Segment without reconciliation

effort

Case 1 New General Ledger implementation offers

various benefits for the business

Period-end closing acceleration (fast close)

Higher data quality through greater process automation and system integration, which lead to

transparency and consistency

Reduced workload in accounting through reduced reconciliation effort and manual report

compilation

Simplification of multi-GAAP accounting to meet existing and upcoming regulatory requirements

Business Benefits

Period-end closing approx. 15-20% acceleration

Process automation

reduced audit costs

reduction of manual postings by approx. 15%

reduced total cost of ownership

Customer achievements


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Case 2 With upgrade to EhP 6, integration in

various areas can be improved

Process Value Levers Benefits

Foreign Currency

Valuation

Realized and unrealized exchange rate

differences are posted in FI with correct

venture information

Reduction of reconciliation effort

Standard single revaluation

program

Higher process automation

JVA/COAllocation/Distribution

Reconciliation between Controlling andFinancial Accounting in real-time

No manual reconciliation necessary

CO->FI reconciliation (KALC)periodic process is unnecessary

as the process is real-time now

Higher process automation

Equity adjustments High integration with FI

No sub-ledger posting anymore (EhP 6)

Equity adjustment is now

reflected in Financial

Accounting as well

Improved data auditabilityReporting Single source of truth

Joint Venture reporting out of Financial

Accounting possible

Reduced manual reconciliation work

With correct setup,reports such

as Trial Balance by Venture can

be produced in FI module and

can use Financial Statement

Version

Improved balance reconciliation

between different SAP modules


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Case 3 Utilizing best practice & EhP 6 functionality,

process improvements can be achieved

New: Changed:

Eliminated: Automated:

Improved reconciliation between Joint Venture

Accounting and New General Ledger, e.g.

realized and unrealized exchange rate

differences, Profit Center Accounting

Reporting opportunities, e.g. combining Joint

Venture with Profit Centre and Segment

Usage of Joint Venture Accounting specific

transactions: GJ90, GJ91, GJNO While activating New General Ledger, the

transaction KALC cannot be executed anymore

(CO to FI reconciliation)

Valuation of realized and unrealized exchange

rate differences switch from JVA to New GL

Equity adjustments to be posted in SAP FI

Reporting of General Ledger and Joint Venture

Accounting can be combined, by activation ofdocument split considering the scenario

FIN_JVA - Joint Venture Accounting

SAP CO to FI integration can be automated for

several objects

Reconciliation between SAP JVA and FI has

been automated, due to additional split criteria

in New GL (venture name, equity group and

recovery indicator)


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Agenda




Parallel operation of JVA and New GL

Customer Value Proposition and Expected Business Benefits



Wrap up


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We deliver the fix scope in 30 days. The service can

be enhanced on a time and material basis

Preparation

Scoping telephone conference

Gathering of requirements via questionnaire

Alignment of workshop schedule and agenda

Workshop

Analysis&

Evaluation

Road

map&

Estimation

Presentation

Two-days workshop execution at clients location

Documentation of Quick Scan results

Evaluation of process improvement potentials

Solution architecture (to-be)

Benefits estimation

Improvement feasibility analyses

Implementation effort estimation

Realization Roadmap

IT Recommendations for ERP

Business Process & Compliance Recommendations

High-level Roadmap (Business & Implementation)

Documentation of Solution Recommendation

Management presentation to support decision making towards

your strategy on JVA, New GL and other financial processes

Deliverables SAPSteps Package / Effort

Quick Scan

Feasibility Study

The fix effort for quick scan and the feasibility study is 30 SAP consulting days, with an estimated customer involvementof 5-7 days. However, depending on the customer situation the service can be enhanced on a time and material basis.


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High-level Delivery Timeline

Delivery done by one Business Consultant

Deliverable:

Quick Scan and Feasibility Study Plan

Project Preparation

Quick Scan Workshop

Quick Scan Completed

Deliverable: Realisation Roadmap

Analysis and Evaluation

Roadmap and Estimation

Final Presentation

Feasibility Study Completed

Duration Activity Milestone

Working Day

1 3 23 26

3.0 mandays

18.0 mandays

3.0 mandays

4 mandays

1 manday

Feasibility

Study

305

0.5 manday

2.0 manday1.0 manday

3.0 mandays

0.5 manday

Quick Scan

SAP Effort Customer EffortPhase Milestone


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Workshop preparation

Telephone conference

Gathering of requirements

Creation of workshop schedule and agenda

Workshop execution

Two days

Meeting at customer location

A questionnaire is used to accelerate customer

environment scanning process

Quick scan

Extract of questionnaire

Quick scan


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As-Is Analysis

Accounting System Architecture

Accounting Business Processes (BPL)

To-be scenario and roadmap

One of the results is Realisation Roadmap which

contains Business Process and IT recommendations

Feasibility study


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Agenda








Wrap up


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BPL Joint Venture Accounting optimizationContent

To-Be Process Flow Charts for level 1 & 2

Integrated end-to-end process of Joint Venture Accounting and New

General Ledger

The Upstream Accounting process consists of three process groups.

Design of Business Processes Level 1-4 (Process Steps), including

Business Rules:

1. Business processes

2. Process Expert Content

3. Process Parameters

4. Solution Transformation

Typical Roles & and KPIs for To-Be Processes to Level 4 (Processes)

Financial Accountant

Controller

JV Accountant

Average Time to Close Monthly Books (in Days)

Average Time to Close Quarterly Books (in Days)

Content

1

2

3


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BPL Joint Venture Accounting optimizationContent

Process Flow Charts for To-Be Processes to Level 4 (Processes)

Considering Roles & Responsibilities (divisions, departments)

Content

4


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To-Be Process DesignProcess Landscape and detailled Process Steps

Based on SAPs Business Process Library and Business Best Practices, a To-be process including

input/output processing


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Agenda








Wrap up


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Before the meeting will be closed, open questions

can be raised in order to clarify any grey area

SAP

PROCESSES

Questionnaire

Survey

Questions?

SAP

PROCESSES

Questionnaire

Survey

Questions?

SAP

PROCESSES

Questionnaire

Survey

Questions?

Wrap up


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The best-run businesses run

SAP.

Contact information:

Saa Markovic

Senior Business Consultant

Mail: [email protected]

Mobile: +49 151 5434 6506


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Appendix


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In Joint Ventures companies can share risk,

investment and resources

Plans future activities of venture

Manages day-to-day activities of venture

Maintains accounting records for venture

Calculates partner shares of venture expenditure and

revenue

Reports venture activity (P&L) to partners

Partner types

Operating partner

Maintains accounting records for own share of venture(s)

Settles account with the operating partner according to theconditions of the venture

Non-Operating partner

Purpose


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JVA Master Data

Master data

Joint Operating

Agreement

Joint Venture

Equity Group

Equity Type

SAP master data representing the JV contract

Represents the highest hierarchy level in a JV

Central master data that belongs to a JOA

Serves as highest summary level for all cost being splitacross partners

Contains the percentage of the share of the different JVpartners

JV usually undergo different phases where it is possible tohave different share distributions, e.g. be having more/lesspartners or a shift in share in-between them

Purpose


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SAP JVA major functions

Function

Joint Venture data capture

Cash Calls

Partner Billing

Cutback

Captures and codes all transactions, including vendorinvoices, inventory movements and allocations, with anoption to produce balanced venture books

Request cash payments for future venture operations

Equivalent to down payments or pre payments

Integrated with Accounts Receivable and Accounts Payable

Calculates partner shares for venture expenses andrevenues

Monitors partner cash calls and receivables

Produces a partner bill containing all relevant information Allocates all operating costs, carried by the operator during

the accounting period, to the non-operating partners,according to their equity shares. This process typicallyoccurs at the end of the accounting period after alltransactions are posted

Purpose


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SAP JVA major functions

Function

Controlling

Equity Adjustment

Bank Account Switching

Allows processing of assessments, distributions, andallocations. In JVA, various costs can be allocated amongmultiple cost objects for distribution to the ventures

Equity adjustment covers several business processes that requirethe creation of new equity groups and different handling forhistorical cost. SAP JVA equity adjustment capabilities providefunctions that cover farm-in, farm-out, and re-determination,facilitating prior-period and pre-cutback equity changes

Bank account switching is common practice outside North

America. Large ventures are funded from one or morededicated venture bank accounts. Depending on the venture,SAP JVA determines the bank account from which an invoiceis paid. SAP JVA also produces correspondence, notifying thebank to make all required transactions for the movement ofcash between accounts. In addition, bank account switchingproduces all required settlement documents, and cancalculate all applicable interest

Purpose


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SAP conducted workshops regarding Accounting

Optimization Assessment service
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