2019 iktva Survey...suppliers. However, in addition to Financing Costs and Government Payments, five...

CSv1

Saudi Aramco: Public

2019 iktva Survey Steps to Complete the 2019 iktva Survey

1


Table of Contents

Introduction ............................................................................................. 2

Case Study ............................................................................................... 3

General Instruction ..................................................................................... 6

Page 1: Company Information ........................................................................ 8

Page 2: iktva Schedule................................................................................ 12

Category E – Section 1.0: Revenue ............................................................... 12

Category A – Section 2.0: Goods, Services, and Depreciation/ Amortization .............. 13

Category B – Section 3.0: Saudi Compensation ................................................. 17

Category C – Section 4.0: Training & Development of Saudis ................................ 18

Category D – Section 5.0 & Section 12.0: Supplier Development ............................ 19

Category R – Section 6.0 & Section 13.0: In-Kingdom Research & Development .......... 20

Section 7.0: In-Kingdom Investment ............................................................. 22

Page 3 - Section 8.0: Top In-Kingdom Suppliers .................................................. 24

Page 4 - Section 9.0: Labor .......................................................................... 29

Page 5 - Section 10.0: Capital Investments ........................................................ 32

Page 6 - Section 11.0: Depreciation and Amortization........................................... 35

Page 7 - Section 12.0: Supplier Development ..................................................... 37

Page 7 - Section 13.0: In-Kingdom Research and Development ................................ 38

Page 8 - Section 14.0: Female Employment ....................................................... 40

Page 9 – Reconciliation Table ........................................................................ 42

Possible Enquiries ..................................................................................... 44

Auditor Reminders..................................................................................... 44

Final Steps .............................................................................................. 46

2


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 and Development of Saudis;

Category D: Development of Local Suppliers;

Category R: Research and Development;

Category E: In-Kingdom Revenue (including exports);

Other: Capital investments, female employment, SME spend, etc.

From this data, Saudi Aramco calculates an iktva ratio that approximates the percent of

Saudi Aramco’s spend that remains in Kingdom or develops the Kingdom’s supply chain and

capabilities. 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,

minimal In-Kingdom content (less than 5%), or are in a startup mode operating at a loss.

Please contact Saudi Aramco’s iktva Certification Unit for further guidance at

[email protected]

http://www.iktva.sa/auditfirms/

3


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 Damman 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 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 2019 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

2019, 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 2019, 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 2019. Though, in 2019, there was a $1.1 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 Top IK suppliers table to smooth the variances from year to year. Their total in-Kingdom spend is as follows:

4


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 AND 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 $500,000 as follows:

1. Expat Employee $300,000

2. Tuition and class fees $180,000

3. Supplies, facilities, etc. $20,000

$500,000

AHSM trained 100 employees during 2019. 75% of the trained employees were Saudis.

Thus, AHSM estimated that $375,000, or 75% of the costs outlined above, are related to

their Saudi workforce.

In addition to those costs, AHSM spent $50,000 on travel and accommodations for the

Saudi employees to attend courses out-of-Kingdom and donated another $75,000 in cash

and 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 2019, $25,000 of which was spent for

training targeted at women.

5


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 2019, they spent $500,000 on R&D. Of this

amount, $300,000 was spent on two expat employees. The

remaining $200,000 was paid to a local technology

development center associated 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 AND DEVELOPMENT

CAPITAL EXPENDITURES

During 2019, 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 2019.

1. Building $625,000

2. Building Improvements $100,000

3. Manufacturing Equip. (Imported) $375,000

4. Software $400,000

5. Vehicles (Imported) $20,000

6. Other Equipment

- Manufactured IK $900,000

- Imported $1,080,000

$3,500,000

6


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.

For companies with partially owned Joint Ventures (JVs), affiliates and subsidiaries

that file a consolidated return, they 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 the iktva survey: 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 BLACK numbers contain formulas and calculations derived

from the input fields and should not be changed. On the other hand, fields/cells

that contain numbers in GREEN 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.

The correct survey tool should be used (First Time or Repeat Filer version) and can

be found at: https://www.iktva.sa/iktva-package/

7


1

Page 1 Company Information

8


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.

9


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) List of global geographical locations of the company’s operations that support

Saudi Aramco or other KSA customers.

10


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 has

to be signed by both the local company’s CEO/General Manager and its top

financial executive.

11


Page 2 iktva Schedule

2

12


Page 2: iktva Schedule Page 2: iktva Schedule, which contains all of the iktva categories, is the heart of the survey.

It contains all of the necessary information to calculate the iktva ratio. Some of the fields

on this page are for direct input (numbers in green), while others are derived from

supporting schedules (numbers in black).

Category E – Section 1.0: 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 2019, 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 1.0 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 and headcount to Saudi

Aramco:

• Revenue Ratio [Default setting in the survey]

Saudi Aramco Revenue from IK Operations x Total KSA Costs/Headcounts

Total KSA Revenue from IK Operations + Exports

In the example above, the revenue ratio is (40%)

• Direct Costing

mailto:[email protected]

13


Category A – Section 2.0: Goods, Services, and Depreciation/

Amortization

The Goods, Services and Depreciation/Amortization section provides the company’s IK

supply chain purchases. All the three lines in Section 2.0 are derived from supporting

schedules.

Goods and Services category 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.

➢ 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

14


The amounts for Goods and Services in the Saudi Aramco and Total KSA columns are derived

from Section 8.0 Top In-Kingdom Suppliers on page 3 of the survey. Thus, In order to

complete Goods and Services, you need to complete Section 8.0 first. These totals from

Section 8.0 will populate the Goods and Services amounts in Section 2.0 as shown below.

Depreciation and Amortization includes a portion of the cost of fixed or other tangible and

intangible long terms assets.

15


The Total KSA Depreciation and Amortization amount comes from Section 11.0 Asset

Depreciation & Amortization (page 6 of the iktva survey) as shown below.

To complete Total KSA Depreciation and Amortization, you need to complete Section 10.0

Capital Investments (page 5 of the iktva survey). The amounts in Section 10.0 will also

automatically populate Section 11.0 Asset Depreciation & Amortization.

Expat Compensation amounts for 2018 and 2019 represent 37% of the costs associated with

payroll and benefits for Expats. However, to be consistent with the iktva methodology

that was applied on 2017, only 10% is allowed for that year. The Total KSA Expat

Compensation amount is derived from Section 9.0 Labor (page 4 of the iktva survey). See

Section 9.0 for more details.

16


Remember:

Saudi Aramco costs can be allocated using Revenue Ratio or Direct Costing

methodologies.

In the example above, the revenue ratio (40%) is being used.

17


Category B – Section 3.0: Saudi Compensation

This section contains both headcount and compensation information related to the

company’s employees.

To complete the required headcount and compensation information needed for Section 3.0,

Section 9.0 has to be finalized first.

Headcount

Saudi Compensation

18


Category C – Section 4.0: Training & Development of Saudis

This section has two main components which are trained headcount and training and

development costs. AHSM spent $625,000 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 9.0 Labor. Training and Development costs and headcounts are directly input into

Section 4.0.

Remember:

The headcount data comes directly from the company’s fiscal year-end GOSI reports

while total Saudi compensation should come from the company’s payroll records.

Saudi Aramco costs and headcounts can be allocated using Revenue Ratio or Direct

Costing methodologies.


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, portion of compensation for expats 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 donations-in-kind claimed in this category should not exceed 1% of total

revenue.


methodologies.


19


Category D – Section 5.0 & Section 12.0: 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.

The amounts listed in Section 5.0 are derived from Section 12.0 Supplier Development on

Page 7 of the iktva survey. The table in Section 12.0 will automatically calculate a bonus

factor (up to 5 percentage points of iktva credit) if the company has spent at least 1.25% of

2019 revenue on Supplier Development.

To be fair among all iktva participants and consistent with the iktva methodology that was

applied prior to 2019, the bonus factor will not impact 2017 and 2018 reported in first time

filers’ surveys.

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 9.0 Labor.

As stated previously, Section 12.0 will update Section 5.0 as shown in the illustration

below:

20


Category R – Section 6.0 & Section 13.0: In-Kingdom Research

& Development

Category R 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.

The amounts listed in Section 6.0 are derived from Section 13.0 In-Kingdom Research and

Development on Page 7 of the iktva survey. Similar to Section 12.0, a bonus factor (up to 5

percentage points of iktva credit) will automatically be calculated if the company has spent

at least 1.25% of 2019 revenue on In-Kingdom Research and Development.

As mentioned earlier, the bonus factor will only impact AHSM’s 2019 and future iktva scores.

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 for those assumptions must be obtained 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.


methodologies.


21


Remember:

The types of costs that can be classified as R&D should be consistent with guidance

provided by IFRS or Saudi Arabian Generally Accepted Accounting Principles. 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 and Development can be included.

Any donations-in-kind claimed for R&D must be approved in advance by Saudi Aramco.


methodologies.


22


Section 7.0: In-Kingdom Investment

This section captures the net capital expenditure additions for each year.

Capital Expenditure amounts are derived from the amounts entered in Section 10.0 Capital

Investments on page 5 of the survey.

23


Page 3 Top In-Kingdom Suppliers

3

24


Page 3 - Section 8.0: Top In-Kingdom

Suppliers This section captures the company’s IK spend with its supply chain. The list of the IK

suppliers should be sorted in descending order based on amounts purchased for the most

recent year reported.

The company has to input the following information into the table:

Supplier’s name.

Supplier’s commercial registration number.

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.

A brief but thorough 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.

From the drop down menu, select the source of iktva ratio (Estimated or

Provided). Provided should be selected only if an actual iktva ratio

approved by Saudi Aramco was obtained from the company’s supplier.

Saudi Aramco’s portion. If the company is using the Revenue Ratio to

allocate costs to Saudi Aramco, then nothing needs to be input as Revenue

Ratio is the default methodology. This should only be overwritten if the

company is using Direct Costing to assign its costs to Saudi Aramco.

Total consumption/purchases for the year for that supplier.

Supplier’s iktva ratio. The default setting for this field relies on the inputs

for “Business Segment” and for materials “Procured Locally or Imported”.

25


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. However, the iktva

ratio can be overwritten if the actual iktva ratio is provided by the

supplier, or if the company has strong justification to use a different ratio

than the ratio provided in the Saudi Aramco guidance.

The top 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 top IK supplier 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 default

to the weighted average iktva ratio generated by the other suppliers and expense

groupings listed for that year. The default can be overridden if justified.

- 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%.

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) and the company can use an iktva ratio of 100% for this line.

26


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 8.0, AHSM will list its top five suppliers in descending order. Including financing

costs, changes in inventory, and government payments, these five suppliers will make up

70% of AHSM’s total purchases, AHSM will add these costs at the bottom of the Top In-

Kingdom Supplier table (see row 60 - 62), 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 and will use the default formula for inventory

changes as well.

Finally, AHSM will indicate the source of the supplier’s iktva ratio. In AHSM’s case, the

source of iktva ratio will be Estimated for all companies. The iktva ratios can be

overwritten if they are actual ratios provided by the suppliers or if the company has strong

justification to not use the estimates given by Saudi Aramco.

As can be seen from the table above, once the suppliers’ iktva ratios are applied, AHSM will

receive $11.3 million of IK credit for its $20.1 million purchases of IK goods and services. As

a reminder, the $11.3 million IK portion for Total KSA and the $4.5 million for Saudi Aramco

will automatically update Section 2.0 In-Kingdom Goods, Services, &

Depreciation/Amortization.

27


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.

28


Page 4 Labor

4

29


Page 4 - Section 9.0: 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 Section 9.0 Labor was appropriate.

After categorizing and splitting its employee base into Saudi and expat components for each

position, the HR Director checked the year end GOSI report to ensure the numbers were

consistent. In addition, he added the Saudi expat who works in their OOK operations.

Compensation

The costs reported here 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 9.0, AHSM’s HR Director completed the Compensation chart, dividing

AHSM’ total compensation into two categories – Saudi including the Saudi expat

($6,000,000) and Expat ($8,000,000). Since AHSM has previously claimed Expat

compensation cost of $225,000 in Section 4.0 Training and Development ($300,000 x 75%),

$200,000 in Section 5.0 Supplier Development, and $300,000 in Section 6.0 Research and

Development, AHSM deducted $725,000 from the Expat Compensation totals reported in

Section 9.0.

The data input in Section 9.0 will automatically update the information required for

Section 2.0 Expat Compensation line and Section 3.0 Saudi Compensation.

30


Remember:

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 9.0 Labor and instead include 100% of the expat compensation costs in

Section 4.0 Training and Development.

Owner/Management Remuneration should not be included in this section.

Compensation must be GOSI registered in order to be claimed in Category B.

Saudi Expats (Saudi Nationals working outside the Kingdom) should be reported

in this section.

31


Page 5 Capital Investments

5

32


Page 5 - Section 10.0: Capital

Investments The iktva survey includes capital expenditures that the company has made for its IK

operations. For first time filers, the details for its annual capital expenditures are listed on

Page 5a CAPEX Table, and summarized on Page 5 Capital Investments. Repeat filers only

need to provide detail for one year on Page 5 Capital Investments unless they choose to

restate their deprecation amount (refer to the survey guide for more details).

To complete the table below, the company will need to know the description of the assets,

their costs, and whether or not those assets were manufactured locally. For assets

manufactured IK, 100% of the acquisition cost will be allowed for depreciation purposes.

However, only 20% of the cost will be allowed for imported fixed assets.

Please note that disposals should only be deducted if previously included in prior year

surveys’ deprecation schedule. 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 2019 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 10.0. Having done this,

AHSM is ready to complete Section 10.0. Below is a breakdown of the assets acquired

during 2019 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

33


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.

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. At a minimum, first time filers should include capital asset information on Page 5a CAPEX Table for at

least three years.

34


Page 6 Depreciation and Amortization

6

7

35


Page 6 - Section 11.0: Depreciation and

Amortization Section 11.0 is automatically populated based on capital and intangible expenditure details

provided in Section 10.0 Capital Investments (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 its actual useful life.

As a reminder, the annual depreciation calculated in Section 11.0 will update the

Depreciation & Amortization line in Section 2.0 In-Kingdom Goods, Services, and

Depreciation/Amortization.

In AHSM’s case, the $2 million IK allowance covering its capital expenditures for 2019 listed

in Section 10.0 will be depreciated over 10 years. The total depreciation for 2019, 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 portion for years 2009 to 2017 from the prior year

certified survey if they choose not to restate the historical deprecation amount. Data will

be provided by Saudi Aramco with the Revenue Confirmation Request.

36


Page 7 Supplier Development and R&D

7

37


Page 7 - Section 12.0: Supplier

Development In Section 12.0, AHSM will describe the types of activities performed related to Category

D, the companies benefited and the costs associated with these activities. After applying

the bonus factor, the total from Section 12.0 will populate the required amount in Section

5.0 on page 2 of the survey.

38


Page 7 - Section 13.0: In-Kingdom

Research and Development AHSM will list the activities related to performing research and development along with

the costs associated with these activities. After applying the bonus factor, the total from

Section 13.0 will populate the required amount in Section 6.0 (page 2 of the survey).

39


Page 8 Female Employment

8

40


Page 8 - Section 14.0: 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 for total Saudis.

During 2019, 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:

AHSM will also name the main roles of female employees, policies or initiatives in place to

attract female participation, and the bottlenecks it faces for employing and retaining

female employees.

41


Page 9 Reconciliation Table

9

42


Page 9 – Reconciliation Table The final page of the iktva survey is the Reconciliation Table. The main function of the

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.

AHSM used its 2019 audited financial statements to prepare the table above. From the

income statement, AHSM listed the total costs for 2019 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 8.0 Top IK Suppliers Table. 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 million IK purchases to a detailed listing it prepared for its auditor.

AHSM is now ready to provide its survey to its selected accounting firm to be audited.

Note:

The eliminations should be listed as deductions, or negative numbers. Otherwise,

error indicators will be displayed.

A detailed listing supporting the total G&S purchased from IK suppliers should be

prepared and provided to the auditors.

iktva related costs

from your company’s

OOK related entities

might qualify for

iktva

43


Possible Inquiries

and Auditor

Reminders

& Auditor Reminders

10

44


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.

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.

45


Final Steps Submitting iktva Survey

11

46


Final Steps Submitting the Company’s Survey

Once the company has completed the survey and received the report from its auditor, the

company can submit its survey through the website (https://www.iktva.sa/survey-

submissions/).

The submission should include 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 should be included in the PDF report in item 1 above.

A copy of the survey tool/Excel file.

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 surveys submitted without the password protection

in place will be rejected and the company will need to refile its survey using the approved

Excel file.

No hard copies of the reports will be accepted. Only soft copies of the report and the Excel

survey will be accepted.

47


[email protected]

Presentations

Survey Guide

Visit our website www.iktva.sa for additional information.
mailto:[email protected]://www.iktva.sa/

2019 iktva Survey...suppliers. However, in addition to Financing Costs and Government Payments, five...

Documents

Transcript of 2019 iktva Survey...suppliers. However, in addition to Financing Costs and Government Payments, five...