Hubbell Policies

At the end of each reporting period, Hubbell shall update the estimated transaction price (including updating its assessment of whether an estimate of variable consideration is constrained) to represent faithfully the circumstances present at the end of the reporting period and the changes in circumstances during the reporting period.

Hubbell Example #7 – Determining the Transaction Price – Program Accruals

Background: Hubbell contracts annually with a large distributor that purchases several million dollars of product from Hubbell. As part of the annual agreement, there is an incentive to the distributor if they grow purchases by 5% compared to prior year the distributor will receive a 1% rebate on all product going back to dollar one of the purchases in the current year. Conclusion: Since there are only two outcomes (obtaining the 1% rebate or not obtaining any rebate) Hubbell decides to utilize the most likely amount to determine the amount of variable consideration. At least quarterly, Hubbell will need to re-assess whether the 1% rebate will be obtained. The assessment should consider the following: - The specific terms of Hubbell’s standing agreement with the distributor/customer - The current obtainment level - Historical experience with the distributor (i.e. in each of the past 5 years the distributor has always obtained the rebate) - Input from the Hubbell employee who manages the relationship with the distributor/customer including, among other factors, the current best estimate of future purchases for the remainder of the year that might impact the achievement of the incentive

Program Accrual required documentation

For program accruals the variable consideration concept described above relates to all program accruals in which the discount earned by the distributor/customer is not fixed. For instance, some examples of variable consideration relating to program accruals occur when distributors/customers have growth targets, which are dependent on obtaining certain growth in purchases compared to prior years. Other agreements may be structured where a fix amount will be paid to the distributor/customer if they make a certain amount of purchases during the year.

For the program accruals that include variable consideration, please refer to Hubbell Example 7 above that includes three data points/qualitative items to consider on a quarterly basis when completing the calculation of the accrual.

For each program accrual that expects a pay-out of $100,000 or more in a year (only the portion relating to the variable consideration part of the program) please utilize the attached required documentation template to document your considerations on a quarterly basis. If your business has any program accrual or rebate programs in which the customer will receive a prospective discount if certain purchasing targets are met, contact the Corporate Controller’s Office as these programs may result in additional performance obligations.

Program Accrual Template.xlsx

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