Joint Venture Audit
What is a Joint Venture?
A joint venture is a contractual relationship generally characterized by parties agreeing to share in the ownership of assets, operational results, and associated risks. The purpose of the joint venture is to unite parties with a common goal and promote collaboration on a specific project or projects. Theoretically, a joint venture allows the parties to leverage their technical and operational expertise and consolidate assets to achieve greater results than what could be achieved individually while minimizing the risks.
The joint venture is governed by an agreement negotiated by the parties. Often, the agreement is referred to Cost Sharing Agreement (CSA), Joint Development Agreement (JDA), Joint Operating Agreement (JOA), or Master Services Agreement (MSA). Each agreement contains unique and specialized terms that may be subject to other industry specific guidelines. The agreement defines the rights and obligations of the parties, how costs are allocated among the owners, and how production or revenue generated from operations are shared. The agreement designates which party will manage the joint venture. That party is generally referred to as the operator while the other parties are referred to as non-operators, minority owners, or partners. The operator is responsible for conducting and paying the costs of operations on behalf of the joint venture. It is also responsible for maintaining an accounting of each owner’s share of costs, production, and, at times, . Expenses and revenues are often allocated based on ownership percentage defined in the agreement, but other formulaic methodologies may define how expenses and revenues are shared.
What is a Joint Interest Audit?
A joint venture or joint interest audit is the process of reviewing the charges and credits made by the operator to the joint venture, also referred to as the joint account, and, more specifically, to the joint interest billings (JIB) submitted to the non-operators for payment. The objective of the audit is to assess whether the charges and credits comply with the provisions of the governing agreements, particularly the Accounting Procedure. AMS-PAR has conducted thousands of joint venture audits on behalf of non-operators.
Why Conduct a Joint Interest Audit?
There are several reasons why companies conduct joint venture audits. Perhaps the most important is to safeguard corporate assets and recover errant billings (“lost profits”). Many joint ventures expend several hundred million dollars of capital (CAPEX) and operating expenses (OE) during the year or on specific projects. Since non-operators do not have access to detailed records and joint interest billings are generally summarized, joint venture audits are the most effective method to examine the detail to assess whether the billings complied with the underlying agreements and recover “lost profits”
Joint venture audits are also conducted to better understand the operator’s operations, cost structure, allocation methodologies, and accounting practices. This insight can resolve misunderstandings or facilitate discussions between the parties. Audits may also be required by external parties or contractual obligations.
In some industries, such as the oil and gas industry, the ability to take exception to errant billings expires after a specified period. It is critical that non-operators conduct audits to ensure their interests are protected.
Joint venture audits should be a component of every company’s risk management program.
Joint venture contracts are complex. The skill and knowledge required to audit the joint account effectively and efficiently is acquired over time. AMS-PAR has performed thousands of joint venture audits since its inception in 1984 and our staff have on average more than 25 years of industry experience.
We focus on our clients’ objectives. Our project methodology delivers consistent results and ensures client objectives are met. AMS-PAR maintains proprietary databases and has developed software tools to analyze data differently. This institutional knowledge and data analytics capability allow us to conduct audits more efficiently. Our reports will detail discrepancies, provide guidance for resolving issues, and include recommendations to improve business practices and commercial terms, if warranted.
Multinational companies, smaller domestic companies, bank trusts, and individuals have all relied on AMS-PAR to provide a higher level of assurance that their audit objectives are met.