The following guidelines should be used in determining whether or not to accrue costs:
- Accruals represent total costs incurred (direct and indirect) in completing the work and that the costs have not been invoiced (i.e. not yet recorded in Company’s book). Examples are:
- Value of material received, but not entered as goods received into the financial systems.
- Estimated Value of material shipped and not yet received if purchase order states FOBshipping point.
- Value of Services/Contracts completed, invoices received but not paid.
- Estimated Value of Services/Contracts completed, but not yet processed and approved thruSystem.
- Progress Payments that are due because agreed upon milestones have been met percontractual agreement, but yet processed and approved through System.
- The fact that a contractual commitment to perform work or supply good exists with a 3rd party is not sufficient grounds to record an accrual. In order to make an accrual, the goods or services must have been received.
- Accruals will be made for all types of costs (Capital and Expense).
A. Accrual Process for Project Expense and Capital
PIC are scheduled to directly input cost-to-date (sponsor) estimate for June 2015 project expense and capital into system no later than specified date.
General guidelines and project accrual calculation process:
- “Sponsor Estimate” is the cost value of the progress made to date (life-to-date/LTD progress) of a project.
- PIC are requested to input sponsor estimates for all respective projects regardless of the budgeted Projects amounts, review and update monthly in line with accounting period close. The sponsor estimate inputted in previous month will be carried forward to following month.
- If the individual project sponsor estimate in a particular month increases more than the threshold as stated in the rules and regulation, compared to previous month’s sponsor estimate, PIC is requested to provide justification in the provided “Explanation” box.
- Project accrual will be calculated by System automatically, once the sponsor estimate entered in System. The System accrual program automatically compares the sponsor estimate with the actual amount already charged to Projects and generates the accrual entry (if the sponsor estimate is higher than the actual).
- Please be noted that all accruals are reversed, re-calculated and re-booked in the following month. If the inputted LTD sponsor estimate and the LTD actual amount do not change in current month, accrual in current month will be the same as that in previous month.
B. Accrual for Non-Project Expense
B.1 Accounts Receivable / Accounts Payable Team
Users need to review and submit the accrual through Opex Accrual Tool for non-project expenses that are not submitted and not fully approved yet in System Work Ticket. The accrual data has to be fully approved in OAT no later than specified date. For System Work Tickets that are not booked yet to another System, the data will be provided in OAT for example on June 26, 2015 to be confirmed by User no later than June 29, 2015 at 02.00 p.m.
B.2 Intercompany Team
For unapproved work ticket already booked in System, Intercompany Team will use System reports to accrue the data by specified date.
The purpose of accrual is to recognize costs, revenues and liabilities which have already been incurred but, due to timing factors (i.e., invoices have not yet been received or an invoice is awaiting Operational approval that has not been sent to Finance), have not been recorded in the finance system. This will include such items as:
- Service/work done or projected to be done by the end of June 2015 for either completed or in- progress projects where an invoice has not yet been invoiced by vendors or an invoice is awaiting approval. In order to come to proper accruals:
- List and review all Projects assigned under your department(s).
- Prepare the best estimate of the AFE cost-to-date based on its physical progress.
- Materials delivered to warehouses and formally received by our representative but not yet enteredinto the system.
- Expenses, such as employee moving expense (Foreign to US and vice versa).
- Time writing hours inputted through System or time writing spreadsheet should not be less thanminimum standard work hours for Year-To-Date June 2015. Please be noted that the Department Heads for time-writing cost centers are required to review and approve the time-writing hours and projects inputted by their staff prior to or on specified time.
B. What Should not be Accruals
- Purchase Orders issued when the materials will be delivered after specified date. Materials not yet received may be accrued only if there is a strong assurance that they will, in fact, be received on or before specified date. To avoid a duplication of charges, if such items are advised to Finance for accrual in the specified time please ensure that they are not submitted into the system until specified month business.
- Commitments or contracts when the service has not been commenced.