Hubbell Policies

EXCESS AND OBSOLETE INVENTORY POLICY

English

Owner : Vice President, Corporate Controller

Last Review: 2023.03.31

FIN - 23

Department: Finance

POLICY This Policy requires that a business maintain reserves for Excess Inventory and Obsolete Inventory (E&O) to ensure inventory is stated at the lower of cost or net realizable value. Only with written approval from the Corporate Controllers office, shall an exemption be allowed from any of these procedures.

SCOPE This Policy applies to all locations with owned inventories.

PURPOSE The purpose of this Policy is to set the standard for preparation of an E&O calculation, minimum quarterly control procedures, balance sheet reconciliation documentation requirements, and electronic audit evidence requirements. All business units that have inventory recorded on the general ledger (GL) must ensure an adequate reserve is recorded for E&O. The reserve must be reviewed at a minimum quarterly and include an analysis of E&O inventory that meets all the requirements of this Policy. The reserve calculation should be performed at an SKU level.

Objective To ensure inventory is stated at the lower of cost or net realizable value.

Concept When evidence exists that the net realizable value of inventory is lower than its cost, the difference must be recognized immediately as a loss in earnings through the Excess and Obsolete account in SAP or your local ERP system. That loss may be required, for example, due to damage, physical deterioration, obsolescence, changes in price levels, or other causes through the Excess and Obsolete account in SAP or your local ERP system.

Frequency of Preparation of E&O Calculation

This review should occur every quarter as follows:

1. First month of quarter – historical inventory value/quantity & qtr. consumption data is gathered / updated. 2. Second month of quarter – the data gathered in month 1 is reviewed for reasonableness with both financial and operational teams. 3. Third month of quarter – an E&O journal entry is recorded in the business unit ’ s General Leger based on the requirement from the first month of the quarter. Balance Sheet Reconciliation Key Assumption Documentation Requirements (BlackLine) The quarterly analysis supporting the adequacy of the E&O reserve must address all inventories on the business unit’s GL (i.e. all inventories for which the business unit holds title to) and must be included in the Balance Sheet reconciliation of the reserve. Each business is required to document all of the following information (either in the BlackLine comments section or in a separately prepared memo which is attached to the BlackLine reconciliation) with respect to the E&O analysis and the calculation that supports the E&O reserve on the business unit’s GL:

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