Risk Assessment- Exercise #1

Social Konnections Inc. (SKI or the “Company”) is a global Internet company that runs Social Konnections, a large social media networking Web site. SKI has experienced steep growth since its launch in 2005, and the Company went public in 2007. SKI currently has over 500 million active users who visit the site to connect with others, express themselves, and play games.

Last year, substantially all of SKI’s revenue came from advertisers who market their products and services to SKI’s active users through advertisements placed on the Web site or its various mobile platforms.

The founder of the company serves as the CEO and is also on the chairman of the board of directors. The CFO is also one of the co-founders of the company. Both have been serving in these roles since 2005.

In Q1 of the current fiscal year, SKI acquired Corporate Collaborations (CC), an entity that manages private and public social media networks for corporations. CC’s customers are primarily national and global companies whose employees connect over its platform. In addition to hosting private social media networks for corporations, CC provides services to develop the networks it manages. CC’s revenues are earned through the performance of multiyear revenue contracts with its customers. In the current year, CC is expected to produce approximately 20 percent of SKI’s consolidated revenue.

SKI’s investors are focused on the growth prospects of the Company’s legacy open social media platform operations and its new corporate revenue unit. The Company’s MD&A disclosures include (1) various user and revenue metrics to help financial statement users assess its traditional operations and (2) backlog information to help users assess CC’s operations.

Advertising Revenue

SKI creates advertising space on its Web site and mobile applications and sells the space to advertisers either directly, or through advertising agencies. According to Mr. Cook, the

amount an advertiser pays is dependent on the number of views the ad receives or the number of user clicks (depending on the type of advertisement defined in the underlying contract) and the revenue is recorded in the period in which the views or clicks are made.

Ms. Drew has learned that simple advertising can be purchased directly from SKI through SKI’s advertising Web site at standard rates, with the advertisements and terms input directly into the Company’s ad delivery platform. However, most advertising revenue is generated directly through the advertising sales team, which has the ability to help advertisers develop more sophisticated advertising campaigns. Management has established minimum pricing and volume thresholds for these advertisements; however, the sales staff is given significant latitude in securing contracts with customers. Extra commissions are paid to sales individuals who sign longer-term contracts that meet minimum revenue targets.

Once a contract is signed, the ad development department creates the ad content and obtains the customer’s approval. The approved ad and the contract are electronically sent to the ad scheduling department, and the advertisement is uploaded into the Company’s ad delivery platform. The ad delivery platform is a robust system and is designed to capture all the nuances associated with the contract. For example, an advertiser may wish to have its ads displayed only to users whose IP addresses are from a specific geographic location, or the contract may be structured to provide the advertiser with variable pricing or incentives (such as a set of free advertisements) once a certain level has been paid for. In summary, the delivery platform captures all the relevant pricing information associated with the contract to allow for real-time revenue recognition according to the terms of the contract. After the contract is entered into the system, a summary of the contract setup is provided to the sales manager that worked with the customer. The sales manager then reviews the contract setup for accuracy.

The Company’s ad delivery platform automatically tracks the advertising activity each day and reports the activity to its customers, who are then billed weekly for the aggregate ad activity.

Ms. Drew’s Concern

Ms. Drew is concerned about several things she has learned regarding the appropriateness of management’s revenue recognition policies.

Financial Statements

Balance Sheet:

*Assets consist primarily of cash, land/building, patents, goodwill, and other assets.

** As you plan your audit this is the latest financial information available.

Controls

The Company’s has various controls in place. The CFO performs a checklist on a monthly basis to review the performance of the company. The CFO reports to the CEO every quarter. The CEO reports to the chairman of the board of directors once a year before the financial statements are prepared and released to the public.

The company has over 10 thousand employees around the world, of which 4 thousand work at the headquarters. All employees receive the company’s code of ethics that was prepared in 2005 when the company was founded. The CEO was in recent trouble when he posted controversial messages on the social platform that offended people of a certain group. The company has One hundred different controls across the company and across the world related to operations of the company and revenue.

The company uses 10 different IT systems as the company is growing quickly it has had to adopt and adds new systems whenever they are needed.

The leaders of one of the main divisions recently left to go work for Facebook, and has not been replaced for the last 4 months.

Controls have changed a lot since last year because the company is so dynamic and the environment is so fast paced. Employees are always trying to keep up with the new systems and new controls.

Audit

Because of SKI’s continued growth, the audit committee has requested that the Company choose a new audit firm with experience in auditing public technology companies.

Kristine Drew, a senior auditor, is the in-charge accountant on the proposal and planning of the SKI audit. In addition to her supervisory and administrative responsibilities, Ms. Drew is responsible for auditing revenue and determining the risk assessment for the audit.

Ms. Drew has read the Company’s disclosed accounting policies and is interviewing the revenue controller, Bill Cook, and various sales personnel to develop in-depth process flow documentation that will serve as the basis for the team’s risk assessment.

Required:

1. What would you set Audit risk, Control Risk, Inherent Risk, and Detection risk? (Very low, low, medium, or high)
2. Are there are significant or fraud risks that you have identified? (If any why are they fraud or significant risks?)
3. What other information do you need to plan your audit approach? Where would you get this information from? For each piece of information indicate where you might receive it from and how? (ex: who else is on the board of directors- obtained through inquiry.)
4. What benchmark would you use to calculate materiality? Why? (ex: revenue, EBITDA, Equity, Assets, etc)
5. Using the benchmark and guidance in the book calculate “overall materiality” for your audit? (ex: 8% of Equity ($60m)= $2.4m).
6. For Revenue what assertions are the most important for you to test?
7. For Revenue what are your concerns with each of those assertions based on the information above?
8. What are the things about testing revenue that you are concerned about (specifically what parts of the company’s process if any concern you)? (Example: An employee could steal money from the bank account, or revenue could be modified in the accounting software by an employee.) (Focus on the actual real process for the company described above to make this determination.)
9. For your audit approach would you choose to test controls or primarily perform substantive procedures? If so what would be your mix of control testing to substantive testing? (ex: 50% controls, and 50% substantive)
10. Would you accept this audit? If not why not?

Risk Assessment- Exercise #1

Social Konnections Inc. (SKI or the “Company”) is a global Internet company that runs Social Konnections, a large social media networking Web site. SKI has experienced steep growth since its launch in 2005, and the Company went public in 2007. SKI currently has over 500 million active users who visit the site to connect with others, express themselves, and play games.

Last year, substantially all of SKI’s revenue came from advertisers who market their products and services to SKI’s active users through advertisements placed on the Web site or its various mobile platforms.

The founder of the company serves as the CEO and is also on the chairman of the board of directors. The CFO is also one of the co-founders of the company. Both have been serving in these roles since 2005.

In Q1 of the current fiscal year, SKI acquired Corporate Collaborations (CC), an entity that manages private and public social media networks for corporations. CC’s customers are primarily national and global companies whose employees connect over its platform. In addition to hosting private social media networks for corporations, CC provides services to develop the networks it manages. CC’s revenues are earned through the performance of multiyear revenue contracts with its customers. In the current year, CC is expected to produce approximately 20 percent of SKI’s consolidated revenue.

SKI’s investors are focused on the growth prospects of the Company’s legacy open social media platform operations and its new corporate revenue unit. The Company’s MD&A disclosures include (1) various user and revenue metrics to help financial statement users assess its traditional operations and (2) backlog information to help users assess CC’s operations.

Advertising Revenue

SKI creates advertising space on its Web site and mobile applications and sells the space to advertisers either directly, or through advertising agencies. According to Mr. Cook, the

amount an advertiser pays is dependent on the number of views the ad receives or the number of user clicks (depending on the type of advertisement defined in the underlying contract) and the revenue is recorded in the period in which the views or clicks are made.

Ms. Drew has learned that simple advertising can be purchased directly from SKI through SKI’s advertising Web site at standard rates, with the advertisements and terms input directly into the Company’s ad delivery platform. However, most advertising revenue is generated directly through the advertising sales team, which has the ability to help advertisers develop more sophisticated advertising campaigns. Management has established minimum pricing and volume thresholds for these advertisements; however, the sales staff is given significant latitude in securing contracts with customers. Extra commissions are paid to sales individuals who sign longer-term contracts that meet minimum revenue targets.

Once a contract is signed, the ad development department creates the ad content and obtains the customer’s approval. The approved ad and the contract are electronically sent to the ad scheduling department, and the advertisement is uploaded into the Company’s ad delivery platform. The ad delivery platform is a robust system and is designed to capture all the nuances associated with the contract. For example, an advertiser may wish to have its ads displayed only to users whose IP addresses are from a specific geographic location, or the contract may be structured to provide the advertiser with variable pricing or incentives (such as a set of free advertisements) once a certain level has been paid for. In summary, the delivery platform captures all the relevant pricing information associated with the contract to allow for real-time revenue recognition according to the terms of the contract. After the contract is entered into the system, a summary of the contract setup is provided to the sales manager that worked with the customer. The sales manager then reviews the contract setup for accuracy.

The Company’s ad delivery platform automatically tracks the advertising activity each day and reports the activity to its customers, who are then billed weekly for the aggregate ad activity.

Ms. Drew’s Concern

Ms. Drew is concerned about several things she has learned regarding the appropriateness of management’s revenue recognition policies.

Financial Statements

Balance Sheet:

*Assets consist primarily of cash, land/building, patents, goodwill, and other assets.

** As you plan your audit this is the latest financial information available.

Controls

The Company’s has various controls in place. The CFO performs a checklist on a monthly basis to review the performance of the company. The CFO reports to the CEO every quarter. The CEO reports to the chairman of the board of directors once a year before the financial statements are prepared and released to the public.

The company has over 10 thousand employees around the world, of which 4 thousand work at the headquarters. All employees receive the company’s code of ethics that was prepared in 2005 when the company was founded. The CEO was in recent trouble when he posted controversial messages on the social platform that offended people of a certain group. The company has One hundred different controls across the company and across the world related to operations of the company and revenue.

The company uses 10 different IT systems as the company is growing quickly it has had to adopt and adds new systems whenever they are needed.

The leaders of one of the main divisions recently left to go work for Facebook, and has not been replaced for the last 4 months.

Controls have changed a lot since last year because the company is so dynamic and the environment is so fast paced. Employees are always trying to keep up with the new systems and new controls.

Audit

Because of SKI’s continued growth, the audit committee has requested that the Company choose a new audit firm with experience in auditing public technology companies.

Kristine Drew, a senior auditor, is the in-charge accountant on the proposal and planning of the SKI audit. In addition to her supervisory and administrative responsibilities, Ms. Drew is responsible for auditing revenue and determining the risk assessment for the audit.

Ms. Drew has read the Company’s disclosed accounting policies and is interviewing the revenue controller, Bill Cook, and various sales personnel to develop in-depth process flow documentation that will serve as the basis for the team’s risk assessment.

Required:

1. What would you set Audit risk, Control Risk, Inherent Risk, and Detection risk? (Very low, low, medium, or high)
2. Are there are significant or fraud risks that you have identified? (If any why are they fraud or significant risks?)
3. What other information do you need to plan your audit approach? Where would you get this information from? For each piece of information indicate where you might receive it from and how? (ex: who else is on the board of directors- obtained through inquiry.)
4. What benchmark would you use to calculate materiality? Why? (ex: revenue, EBITDA, Equity, Assets, etc)
5. Using the benchmark and guidance in the book calculate “overall materiality” for your audit? (ex: 8% of Equity ($60m)= $2.4m).
6. For Revenue what assertions are the most important for you to test?
7. For Revenue what are your concerns with each of those assertions based on the information above?
8. What are the things about testing revenue that you are concerned about (specifically what parts of the company’s process if any concern you)? (Example: An employee could steal money from the bank account, or revenue could be modified in the accounting software by an employee.) (Focus on the actual real process for the company described above to make this determination.)
9. For your audit approach would you choose to test controls or primarily perform substantive procedures? If so what would be your mix of control testing to substantive testing? (ex: 50% controls, and 50% substantive)
10. Would you accept this audit? If not why not?

Risk Assessment- Exercise #1

Social Konnections Inc. (SKI or the “Company”) is a global Internet company that runs Social Konnections, a large social media networking Web site. SKI has experienced steep growth since its launch in 2005, and the Company went public in 2007. SKI currently has over 500 million active users who visit the site to connect with others, express themselves, and play games.

Last year, substantially all of SKI’s revenue came from advertisers who market their products and services to SKI’s active users through advertisements placed on the Web site or its various mobile platforms.

The founder of the company serves as the CEO and is also on the chairman of the board of directors. The CFO is also one of the co-founders of the company. Both have been serving in these roles since 2005.

In Q1 of the current fiscal year, SKI acquired Corporate Collaborations (CC), an entity that manages private and public social media networks for corporations. CC’s customers are primarily national and global companies whose employees connect over its platform. In addition to hosting private social media networks for corporations, CC provides services to develop the networks it manages. CC’s revenues are earned through the performance of multiyear revenue contracts with its customers. In the current year, CC is expected to produce approximately 20 percent of SKI’s consolidated revenue.

SKI’s investors are focused on the growth prospects of the Company’s legacy open social media platform operations and its new corporate revenue unit. The Company’s MD&A disclosures include (1) various user and revenue metrics to help financial statement users assess its traditional operations and (2) backlog information to help users assess CC’s operations.

Advertising Revenue

SKI creates advertising space on its Web site and mobile applications and sells the space to advertisers either directly, or through advertising agencies. According to Mr. Cook, the

amount an advertiser pays is dependent on the number of views the ad receives or the number of user clicks (depending on the type of advertisement defined in the underlying contract) and the revenue is recorded in the period in which the views or clicks are made.

Ms. Drew has learned that simple advertising can be purchased directly from SKI through SKI’s advertising Web site at standard rates, with the advertisements and terms input directly into the Company’s ad delivery platform. However, most advertising revenue is generated directly through the advertising sales team, which has the ability to help advertisers develop more sophisticated advertising campaigns. Management has established minimum pricing and volume thresholds for these advertisements; however, the sales staff is given significant latitude in securing contracts with customers. Extra commissions are paid to sales individuals who sign longer-term contracts that meet minimum revenue targets.

Once a contract is signed, the ad development department creates the ad content and obtains the customer’s approval. The approved ad and the contract are electronically sent to the ad scheduling department, and the advertisement is uploaded into the Company’s ad delivery platform. The ad delivery platform is a robust system and is designed to capture all the nuances associated with the contract. For example, an advertiser may wish to have its ads displayed only to users whose IP addresses are from a specific geographic location, or the contract may be structured to provide the advertiser with variable pricing or incentives (such as a set of free advertisements) once a certain level has been paid for. In summary, the delivery platform captures all the relevant pricing information associated with the contract to allow for real-time revenue recognition according to the terms of the contract. After the contract is entered into the system, a summary of the contract setup is provided to the sales manager that worked with the customer. The sales manager then reviews the contract setup for accuracy.

The Company’s ad delivery platform automatically tracks the advertising activity each day and reports the activity to its customers, who are then billed weekly for the aggregate ad activity.

Ms. Drew’s Concern

Ms. Drew is concerned about several things she has learned regarding the appropriateness of management’s revenue recognition policies.

Financial Statements

Balance Sheet:

*Assets consist primarily of cash, land/building, patents, goodwill, and other assets.

** As you plan your audit this is the latest financial information available.

Controls

The Company’s has various controls in place. The CFO performs a checklist on a monthly basis to review the performance of the company. The CFO reports to the CEO every quarter. The CEO reports to the chairman of the board of directors once a year before the financial statements are prepared and released to the public.

The company has over 10 thousand employees around the world, of which 4 thousand work at the headquarters. All employees receive the company’s code of ethics that was prepared in 2005 when the company was founded. The CEO was in recent trouble when he posted controversial messages on the social platform that offended people of a certain group. The company has One hundred different controls across the company and across the world related to operations of the company and revenue.

The company uses 10 different IT systems as the company is growing quickly it has had to adopt and adds new systems whenever they are needed.

The leaders of one of the main divisions recently left to go work for Facebook, and has not been replaced for the last 4 months.

Controls have changed a lot since last year because the company is so dynamic and the environment is so fast paced. Employees are always trying to keep up with the new systems and new controls.

Audit

Because of SKI’s continued growth, the audit committee has requested that the Company choose a new audit firm with experience in auditing public technology companies.

Kristine Drew, a senior auditor, is the in-charge accountant on the proposal and planning of the SKI audit. In addition to her supervisory and administrative responsibilities, Ms. Drew is responsible for auditing revenue and determining the risk assessment for the audit.

Ms. Drew has read the Company’s disclosed accounting policies and is interviewing the revenue controller, Bill Cook, and various sales personnel to develop in-depth process flow documentation that will serve as the basis for the team’s risk assessment.

Required:

1. What would you set Audit risk, Control Risk, Inherent Risk, and Detection risk? (Very low, low, medium, or high)
2. Are there are significant or fraud risks that you have identified? (If any why are they fraud or significant risks?)
3. What other information do you need to plan your audit approach? Where would you get this information from? For each piece of information indicate where you might receive it from and how? (ex: who else is on the board of directors- obtained through inquiry.)
4. What benchmark would you use to calculate materiality? Why? (ex: revenue, EBITDA, Equity, Assets, etc)
5. Using the benchmark and guidance in the book calculate “overall materiality” for your audit? (ex: 8% of Equity ($60m)= $2.4m).
6. For Revenue what assertions are the most important for you to test?
7. For Revenue what are your concerns with each of those assertions based on the information above?
8. What are the things about testing revenue that you are concerned about (specifically what parts of the company’s process if any concern you)? (Example: An employee could steal money from the bank account, or revenue could be modified in the accounting software by an employee.) (Focus on the actual real process for the company described above to make this determination.)
9. For your audit approach would you choose to test controls or primarily perform substantive procedures? If so what would be your mix of control testing to substantive testing? (ex: 50% controls, and 50% substantive)
10. Would you accept this audit? If not why not?

How has the current financial crisis in Greece affected exchanges rates (USD-€)? How would this affect your US company if you were importing from Greece? Exporting to Greece?

Earnings per share Bass Ltd, a leading producer of construction, mining and electrical equipment, suffered a significant drop in the demand of the company’s products due to COVID-19 in 2020 that significantly threatens the financial stability of the company. Bass in order to survive in this critical situation decides to restructure its strategy for forthcoming years. Changes in company strategies and accounting policies have a significant impact on reported profit. The basic earnings per share and diluted earnings per share presented in the company’s current year financial statements in accordance with “AASB 133 Earnings per Share” were comparatively higher than that of the last year. In contrast, company share prices have dropped by 20% at the reporting date, according to Yahoo finance.

While most shareholders seem unhappy to own company shares for the meagre dividend attached to them the question of whether Bass Ltd are fully valued at their current share prices continues to linger.

The directors of Bass Ltd are not sure how to calculate and include basic and diluted earnings per share in the company’s financial statements in accordance with AASB 133, and called for a report from the Finance Manager of the company.

On 30 June 2020, Bass Ltd had the following equity:

Preference shares (issued at $ 2 each) 500 000 shares Ordinary shares (issued at $ 3 each) $ 3 000 000 Retained earnings $1 250 000 Reserves $ 520 000 Total equity $ 5 770 000 During the year ended 30 June 2020, the company earned after tax profit of $1 240 000 from ordinary activities. The additional information is available.

i. On 20 November 2019, the company made a one-for-five bonus issue, and on 30 March 2020, the company made a rights issue of 400 000 ordinary shares.

ii. On 20 July 2017, the company issued $ 750 000 of 8% convertible notes. Each $ 100 note was convertible into 50 ordinary shares. There was no conversion during the year ended 30 June 2020.

iii. On 28 February 2019, the company issued options to purchase 10 000 shares at $ 3.50 each. No options were exercised during the year ended 30 June 2020.

iv. The company income tax rate is $ 0.30 in the dollar and the company’s ordinary shares are trading at $ 5 per share on 30 June 2020.

v. The company paid preference dividends of $ 40 000.  

Required 1. Briefly describe the requirements of AASB 133 ‘earnings per share’ for the calculation of earnings per share.

2. Distinguish between basic and diluted earnings per share.

Following the requirements of AASB 133:

3. Calculate basic earnings per share.

4. Calculate diluted earnings per share.

John is a middle aged executive for a small company. They treat him well, but, unfortunately, cannot pay what he believes he is worth. Recently, he applied to a large international corporation for an executive position. After a phone interview, which went well, the prospect employer set up an interview at their corporate offices. They then e-mailed John a series of questions which would be part of their second interview. Surprisingly, there were several questions as to what cable television news shows he regularly watches and the magazines and/or subscriptions he receives either online or through the mail.

John considers himself an independent and does not belong to any one party. He, however, favors cable news shows that are considered liberal and receives an online subscription to The New Republic and New Yorker. If he admits to this information, he worries he will be “painted” as a liberal, a radical, or at least an intellectual. Although this information should NOT be important to his future job, the company would not ask these questions unless they had a reason for this information.

Therefore, John decides to lie to the interviewing committee and indicate he rarely watches cable news shows and mostly watches the sports networks and the movie channel with his wife.

Is John’s conduct wrong? Is it unethical to lie to obtain employment when you know the provided information will not affect your work product? After he is hired, should he “confess” he watches some cable news shows?

What do you do? What are your choices?

Q.4.2

In the 2020 fiscal year, Company B reported an accounting profit of $1,000. In the same year, the accounting depreciation expense for plant was $150, while the tax deduction for plant depreciation was $200. There was no other difference between accounting and tax in the year. In the 2019 fiscal year, the company recorded a tax loss ($300) and recognized a deferred tax asset in respect of this tax loss. In the 2020 fiscal year, the company reduced the taxable profit by recouping the tax losses carried forward. The company does not set off deferred tax liabilities and assets. The corporate tax rate is 30%.

1. Required: Provide the journal entries for the current tax adjustment. Workings (or narrations) are not required.

2. Now assume that Company B’s accounting profit in the 2020 fiscal year includes $55 of government grant which is exempt from tax. Also, assume that tax losses carried forward must be offset against any exempt income before being used to reduce taxable profit.

Required: Under these additional assumptions, provide the journal entries for the current tax adjustment. Workings (or explanations) are not required.

Tuki Mohammed Al-Shehri is head of Saudi Arabia’s Renewable Energy Project Development Office. London: In an exclusive interview with Arab News, Turki Mohammed Al-Shehri explains how an expanding renewables industry will boost employment as well as pave the way for a greener future. *** Crown Prince Mohammed bin Salman unveiled plans to develop the world’s biggest solar power project for $200 billion. A massive investment drive in green energy projects across Saudi Arabia is about creating jobs as well as diversifying the energy mix away from oil, according to the Kingdom’s renewables chief. Last week Saudi Arabia revealed ambitious plans to produce 200 gigawatts of solar power by 2030, helping the country become a leading exporter of sustainable energy. In an exclusive interview with Arab News, Turki Mohammed Al-Shehri, head of Saudi Arabia’s Renewable Energy Project Development Office (Repdo), said jobs and “local content” are guiding principles of the Kingdom’s renewables program. “A fundamental cornerstone of these projects will be local content. Local content is key — it is being stipulated in tenders,” said Al-Shehri in an interview in London. He said: “The idea is that the products and components that are used in these farms (turbines, panels, hoists and other parts) are brought in from local factories, and the idea is to grow the industry organically; we want local factories to also export outside the Kingdom, ensuring the creation of jobs, and this will make sure that everything that is built in the Kingdom will be on a competitive global basis.” Al-Shehri told Bloomberg in January that eight renewables tenders would be issued this year for 4.125 gigawatts of capacity at a cost of between $5 billion and $7 billion. Asked by Arab News if the Kingdom would also need foreign investment to develop the sector, Al-Shehri replied: “Due to the size of the projects, we do need foreign investment experience and know-how, yes.” In terms of the nuts and bolts of how renewable tenders would work, he pointed to the example of Riyadh-based Acwa Power, which recently won the contract to build the Kingdom’s first utility-scale solar photovoltaic plant. “As long as they meet our local content requirement of 30 percent as well as other stipulations, where and how they source the technology is up to them,” he said. “The objective is to have an economic energy mix, driven by low-cost energy, and to ensure that local competitive industry is created in the Kingdom.” By building up solar and wind-power generation, KSA will free up oil reserves for export, strengthening the country’s balance sheet. Last week Crown Prince Mohammed bin Salman unveiled plans to develop the world’s biggest solar power project for $200 billion in partnership with Japan’s SoftBank. The memorandum of understanding aims to produce up to 200 gigawatts of power by 2030 — about 100 times the capacity of the current biggest projects. If built on one site, the solar farm would cover an area twice the size of Hong Kong, according to a Bloomberg News calculation. Acwa Power CEO Paddy Padmanathan, who along with Al-Shehri attended London’s recent Saudi-UK CEO Forum, said: “Personally, I think they (renewables) could make up 40 percent of the (KSA) energy mix in 2030.” Turning to his company’s success in February, 2018, of being awarded the 300-megawatt PV solar project in Sakaka, Padmanathan said: “The tender was a rigorous, transparent process at a new world-record tariff and will set the foundation for a robust and competitive market for renewable energy in the Kingdom.” The 25-year Sakaka power purchase contract was awarded to Acwa at a new world-record tariff of 8.781 halala/kWh (per kilowatt hour) (2.3417 cents/kWh). Middle Eastern oil producers are looking to renewables to meet growing domestic consumption and would rather export as much oil as possible to generate income to meet internationally recognized green energy standards, such as those in the Paris climate accord, while also reducing reliance on fossil fuels. Saudi Arabia wants to deploy more natural gas, as well as solar and wind, to reduce its dependence on oil-based power generation. Developing a renewable energy industry is a key plank of Saudi Vision 2030. The Sakaka plant, which Acwa has already started constructing in Al-Jawf province, is backed by a 25-year power purchase agreement with the Saudi Power Procurement Company. Last year the Kingdom also tendered a 400 megawatt wind project — its first — at Dumat Al-Jandal, for which Repdo prequalified a number of companies in 2017. In a recent interview with Arab News, Adnan Amin, director-general of the International Renewable Agency, said renewables were incredibly cheap now. “The latest bids for Saudi solar projects are around 2.5 US cents per kWh, which is about a quarter of the cost of oil,” he said. Victoria Cuming, head of policy covering Europe, Middle East and Africa for Bloomberg New Energy Finance (BNEF), told Arab News: “Looking at the MENA region as a whole, renewables should both replace fossil fuel and add to the mix, as electricity demand will double by 2040, according to BNEF forecasts.” She expected the region to see a significant shift in the capacity mix, from being 93 percent fossil fuels today to just under half renewables in 2040, according to BNEF’s New Energy Outlook 2017. Cuming said: “In the near term, this will be mainly driven by incentives such as auctions, but in less than a decade the shift will be driven by the economics. Utility-scale PV plants are already cheaper than combined-cycle gas plants in net importing countries such as Egypt.” Provided governments continue to phase out fossil-fuel subsidies, “this will be the case across MENA by 2025. Ten years later, onshore wind farms will be cheaper than gas,” said Cuming.

1. ^{Discuss how renewable energy sector can grow organically. What are the benefits to Saudi Arabia.}

^{2- Conduct SWOT analysis for ACWA.}