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Two Fortune 500 companies have formed a joint venture (JV) to produce petroleum products, using a shared IT system based on the main system of one partner. The cost is intended to be split fairly, but since the JV doesn’t use all the main system’s functions, only the shared functions’ costs should be split. The IT system was built by one JV partner, with costs directly allocated or apportioned, and the JV is billed accordingly. These costs, detailed through numerous vendor invoices and allocations, amount to several hundred million Ringgits, making it the JV’s second highest expense after production costs. The JV’s management wants the costs verified before processing the claims.
2 Fortune 500 companies formed a joint venture for producing petroleum products. The production complex uses shared IT system.
The IT system is based on the main system of one the JV partner and the cost is meant to be split equitably. The JV company however does not use all the functions of the main architecture of the entire IT system. Thus, for splitting the cost equitably, only the shared functions should be borne by the partners.
The IT system of the JV entity is therefore built by one of the JV partner and consisted of cost that are directly allocated and/or apportioned. The JV company is then billed for the cost of the system. The claim consisted of highly voluminous details i.e. vendors’ invoices, allocations and stages of apportionments. For processing the claims by the JV partner, the Management of the JV company would like for cost verification to be done.
The IT system cost several hundred million Ringgits and is the second highest expenses after the cost of production of the petroleum products.
- The understanding of management of the JV Company of the expenditure of IT system has significantly increase.
- Assisting the management to Identify those costs that should not be borne by the JV Company.
- Providing the Management important points for negotiating the shared cost.
- Significant savings of IT expenditure to the tune of several tenths of millions Ringgit.
View the figure above for the verification of cost allocation between JV Partners (sample, one of the cost allocated)
The Governance Board of a federal government agency tasked its management to produce their complete set of financial statements using a new set of accounting standards i.e. the Malaysian Public Sector Accounting Standards (“MPSAS”). Previously, the agency was using the Malaysian Financial Accounting Standards (“MFRS”).
2 Fortune 500 companies formed a joint venture for producing petroleum products. The production complex uses shared IT system. The IT system is based on the main system of one the JV partner and the cost is meant to be split equitably.
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