IT systems developed and used across multiple entities
WAN NADZIR & CO.CHARTERED ACCOUNTANTS · AF1234Corporate & Transaction Support
Reviewing Shared IT-System Costs Allocated to a Joint Venture
A petroleum joint venture required an independent review of the methodology, supporting records and calculations used to allocate shared IT-system costs by one of its participants.
Assignment snapshot
Costs passing through four stages before reaching the joint venture
A large population of charges involving hundreds of millions of ringgit
The assignment
Shared systems do not always mean equally shared costs.
The joint venture used parts of an extensive IT environment developed by one of its participants for a large petroleum production complex.
The joint venture did not use every function within the wider system. Its management therefore needed to understand whether the costs charged to it reflected the infrastructure and services it used, and whether the allocation bases, calculations and supporting records could be verified.
The challenge
Follow the cost.
Test every stage.
- 01
Understand how project costs moved through several allocation stages before reaching the joint venture.
- 02
Determine whether the allocation methodology reflected the functions and infrastructure used by the joint venture.
- 03
Trace selected charges to vendor invoices, purchase orders and other supporting records.
- 04
Assess whether the inputs used for each allocation basis agreed with the available documentation.
- 05
Distinguish verified charges from items requiring further clarification or support.
- 06
Quantify the effect of verification adjustments and additional reduction scenarios.
Our approach
Tracing the charges from source cost to the joint venture.
We reconstructed the allocation flow so that management could see how the final charge had been built up.
At each stage, we reviewed the allocation basis, compared the inputs with available supporting records and recalculated selected charges. This allowed supported items to be distinguished from amounts that required clarification or could not be verified from the information available.
Source costs
Review project costs, contracts, purchase orders, invoices and the estimate-at-completion records.
→Assets & services
Trace how source costs were mapped to infrastructure assets and the related service categories.
→Catalogue items
Review the basis used to move service costs into the relevant catalogue items.
→Joint-venture charge
Recalculate the final allocation to the joint venture using the supported allocation inputs.
What we delivered
A clearer view of how the shared costs were calculated and supported.
- Review of the overall cost-charging methodology
- Tracing of selected charges to source documents
- Review of directly allocated and apportioned costs
- Testing of inputs used in the allocation bases
- Recalculation of selected allocation stages
- Identification of supported, unsupported and unresolved items
- Quantification of verification adjustments
- Additional reduction scenarios for management’s consideration
The outcome
A stronger basis for management review and negotiation.
The review gave management a clearer understanding of the allocation methodology and identified charges that were supported, items requiring further clarification, and allocation inputs that did not agree with the available records.
We quantified the verification adjustments and developed additional reduction scenarios for management's consideration. This provided a more informed basis for reviewing and discussing the shared costs with the other joint-venture participant.
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