jva101 introduction to jva v5

PowerPoint Presentation*
Copyright © Accenture and SAP 2014. All Rights Reserved. Accenture and SAP confidential and proprietary material.
Upstream Production Operations
May 2014
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Irvan Wandana
Senior Manager in Accenture’s System Integration - SAP practice based in Calgary, Canada
Ronan Fox
Senior Manager in Accenture’s TGP Energy practice working in Houston, Texas
Your Presenters for Today
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Welcome to the Upstream Production Operations (UPO) Virtual Learning Series!
Upstream Production Operations is a market-making offering providing solutions and services for the end-to-end hydrocarbon and revenue accounting process from wellhead to revenue
Johan Nell
Global Upstream Lead &
UPO Offering Lead
In the JVA 101 course, you will be provided an overview of joint venture accounting (JVA), with specific examples. The course aims to describe what JVA is, how it integrates with other SAP processes, and the periodic processes in JVA.
Explain the features of JVA
Understand and explain the basic processes of JVA
Describe the integration of JVA with other SAP processes
Welcome
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Agenda
Q&A
Questions & Answers
Contacts & Links
Contacts & Links
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Key Terms
Key Term
Joint Operating Agreement (JOA)
A JOA is a formal agreement that specifies the conditions for joint operation including the various development stages, such as engineering and design, construction, and production.
Joint Venture (JV)
A JV is an association of two or more partners, formed to share a venture’s risks, costs, and revenues. It provides partners with a share proportional to their undivided interest in the venture.
Equity Types
An equity type signifies a particular association of partners at a particular stage of the JOA.
Equity Groups
An equity group represents an association of venture partners and their interests. It may consist of some or all of the venture partners.
Joint Venture Partners
JV partners are partners mentioned in the JOA with an undivided interest in a venture
Recovery Indicators
Recovery indicators are assigned to cost objects to indicate if expenses are billable to JVA partners.
Billing Indicators
Billing indicators identify the type of posting involved, including cash call, normal expenditure, and audit adjustment.
JVA Overview
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Stages in the Oil and Gas Industry
There are three stages in the oil and gas upstream industry:
Exploration – looking for suitable resources to tap
Development – building of onshore/offshore platform for extraction
Production – actual extraction of oil/gas
JVA Overview
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Challenges in the Oil and Gas Industry
The oil and gas upstream industry faces some unique challenges:
High risk: There are risks due to various considerations such as political, financial, and environmental impacts.
High capital expenditure: Exploration and development are very capital-intensive stages.
Long payback period: The industry is characterized by a long time frame before an enterprise recovers its initial investment and turns profitable.
Due to these challenges, firms collaborate and form joint ventures to mitigate their risks and ensure smooth operations.
JVA Overview
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What is a Joint Venture?
A joint venture is a short duration business, entered into by two or more enterprises without using the firm name.
Partners contribute funds for running the business.
Partners share profit/loss at an agreed ratio.
Generally, the profit/loss of the venture is computed on completion of the venture, or at certain decided intervals.
Features of JVA
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Oil & Gas companies usually form JVs to:
Explore for producing Oil or Gas
Share the risk, costs, required skills, and profits derived
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Maintain venture accounting records.
Report venture activity to partners.
Non-operating Partner Responsibilities
Maintain accounting records for their own share of the venture.
Settle accounts with the operating partner, according to the conditions of the venture.
Composition of Joint Venture
Introduction to JVA
Note to Facilitator: Share an understanding on how Oil & Gas ventures function and the features that characterize operating and non-operating partners.
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JVA: Business Need
Factors that create a need for joint ventures:
Capital-intensive – Projects can be too big for a single company to finance on its own.
Risk concentration – No single company would want to take so much risk on its own.
Access to technology – Proprietary technology might need the owner to have a stake.
Resource access – Legal owner of assets may not have enough resources to tap them.
Supply chain optimization – Downstream supply chains may be optimized across disparate geographies by pooling assets.
Regulatory requirements – In some countries, regulatory requirements make it necessary for foreign players to partner with local firms.
JVA Overview
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JVA Processes
JVA Overview
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On Line Update
JVA Overview
JVA – Structure
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Human Resources
Coding
Splitting
Clearing
JV
Database
JVA captures and posts JV financial information online. The standard Finance (FI/CO) interface:
collects details of all accounting transactions
uses the information to prepare accounting documents
The JV interface:
uses the information to prepare a JVA document
The JVA document includes info about the venture, EG and recovery indicator.
JV
Document
Joint Venture Accounting – Integration
Note to Facilitator: Discuss how the JVA captures and posts JV financial information online.
Explanation: JVA captures and posts JV financial information online. The standard Finance (FI/CO) interface collects details of all accounting transactions and uses the information to prepare accounting documents in the standard modules. The JV interface reviews all accounting documents and uses the information to prepare a JVA document. The JVA document includes info about the venture, EG and recovery indicator. You can use this document to identify financial transactions for a venture and to charge any venture costs to the relevant partners in the venture.
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Cash Call
Cash calls are requests for payment for anticipated future capital and operating expenditures, sent by joint venture operators to non-operating partners
Cash calls can be posted net or gross. Net cash calls are requests made to a single partner. Gross cash calls are requests made to all partners in an equity group.
A typical cash call process flow is as below:
A cash call is issued.
A cash call payment is posted.
An expense for which the cash call was issued is then posted.
The cash call is reclassified for clearing.
Cash Call
JVA Overview
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Foreign Currency Valuation
Foreign currency valuation is used for realized and unrealized foreign exchange, assigning gains and losses to SAP JVA cost objects, and ultimately to partners.
To bill costs to SAP JVA partners at the end of an accounting period, it is needed to:
Determine the value of the balances of foreign currency accounts in terms of local currency.
Account for the differences (gains and losses) that have resulted from exchange rate changes during the period.
Assign gains and losses to SAP JVA cost objects and ultimately to partners.
Foreign Currency Valuation
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Allocations
Allocation of costs is a part of closing operations where administrative costs are allocated to sales and distribution cost centers.
The following types of allocations are available in SAP JVA:
Assessments
Distributions
Allocations
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Parent Company Overload
The joint venture operator incurs indirect expenses, and can charge overheads to partners to recover these costs.
Parent company overheads (PCO) are generally posted as part of the month-end process to cater for costs incurred at the head office that are chargeable to operated joint ventures.
Parent Company Overload
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Suspense Processing
Suspense processing allows the operator to continue regular processing in the event of dispute or uncertainty.
Partners may be held in suspense for various reasons; for example, if there are issues over the partner’s share in a venture or unwillingness to perform part of venture work.
If a partner is suspended, cutback postings are not executed for that partner. Suspended partners do not receive invoices.
Suspense Processing
JVA Overview
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Equity Adjustments
An equity change is a change in the equity group because of the inclusion of a new partner in the JV or the retirement of an existing partner from the JV during the course of the JV.
During the life of a JV, a number of factors can cause a change to the equity shares held by each partner. These could be:
A change to an existing arrangement through sale of a partner’s interest.
A requirement for a brand new equity type (for example: through the commencement of a new phase of activity).
All these changes in equity groups need to be accounted for, so that the cost and revenue can be shared between the current partners.
Equity Adjustments
JVA Overview
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Cutback
SAP JVA’s cutback process assigns expenses to partners.
The operating partner of a joint venture carries all of the operating costs of that venture throughout the accounting period.
At the end of the accounting period, the operator’s expenditures are divided between the operator and the non-operating partners, according to their equity shares.
Cutback
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Billing
Billing (operated and non-operated) can be invoice based, cash based, and expenditure based.
At the end of an accounting period, the operating partner recovers the cost of venture expenditures from the non-operating partners. The SAP JVA billing program extracts relevant billing information from the SAP JVA databases and issues invoices and supporting documents to non-operating venture partners.
Billing
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VBA Switching
The financing arrangements for the ventures might be of the following types:
All the ventures are funded by a central disbursement bank.
You can fund joint venture expenditures from dedicated venture bank accounts (VBAs). The operator funds the venture expenditures from the appropriate VBA. The non-operating partners then reimburse the VBA.
In order to ensure that each venture pays its share of expenditure properly, a transfer of funds amongst ventures is required. This process is known as venture bank account switching.
VBA Switching
JVA Overview
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Partner Netting
The netting process clears cutback transactions against the cash call issued. A single net open item for each company, partner, venture, and equity group will be posted and carried forward to the next accounting period.
Partner netting creates a new clearing entry for each unique combination of partner, equity group, and venture.
This functionality is available for both operated as well as for non-operated ventures.
Partner Netting
JVA Overview
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Convenience Netting
Usually, convenience netting is used only by US and Canadian region companies.
Convenience netting posts the credit entry to the partner’s account if there is a credit balance. If there is no credit balance for the partner, the netting program does not post.
Convenience Netting is a three-step process:
All open expense items for a partner for a specified period are summarized.
All open revenue entries for the partner for the period are summarized.
If the summarized revenues exceed the expenses, a single credit entry is posted to the partner’s vendor account in FI accounts payable.
Convenience Netting
JVA Overview
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Generic SAP Activities
SAP general activity (no JVA process) - Reporting:
This provides various reports on JVA business transactions, and can be executed on a periodic or ad hoc basis.
SAP general activity (no JVA process) - Carry Forward:
At the end of a process in JVA, there is one procedure that has to be fulfilled. Carrying forward is not an explicit process but a procedure for closing a process.
Reporting
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Session Summary
Companies resort to JVs to reduce the risk of high capital expenditure with a long payback period.
There are various levels of master data to be set up in JVA.
JVA has a number of processes that need to be performed at pre-determined intervals as period-end processes.
In this course, you have learned that:
JVA Overview
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Questions & Answers
Q&A
Contacts & Links
Contacts & Links
Q&A
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Questions & Answers
Q&A
Services & Solutions
Where are Opportunities & Projects?
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Questions & Answers
Q&A
Contacts & Links
Contacts & Links
Contacts & Links
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Key Contacts
Contacts & Links
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jva101 introduction to jva v5

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