1. Objective and Scope

1.1   Objective of this Procedure

This procedure describes the Group requirements for macro process Costing – Inventory Valuation

 

It includes:

-           the roles and responsibilities within the SBS RtR organization

-           the tasks to be performed

-           the related deadlines.

 

More precisely, this document will focus on:

-          Part 4.1 : the overview of responsibilities in the light of SBS organization

-          Part 4.2 : the Inventory Valuation process General Description

-          Part 4.3 : the Physical Inventory Count process

-          Part 4.4 : the Reserves Estimation process  

-          Part 4.5 : the Internal Margins Elimination process

-          Part 4.6 : the related Internal Core Controls 

1.2   Scope

This organizational procedure (P) applies to all companies included in the Solvay Business Services scope of entities.

This procedure takes effect as of disclosure of the document to the Group.

 

2. Reference Documents

SBS-P-DRTR-04-006 Intercompany reconciliation process 

3. Definitions

Costing - Glossary

4. Organizational Procedure

4.1   General Roles and Responsibilities

RtR PE Costing :  Process Management Team – WW level

  • PE Costing is the owner of the process for the Group at a worldwide level

  • Ensure efficient governance of the process through rules definition, communication and enforcement.

  • Manage internal controls on Costing and Cost Accounting

The Process Expert will work closely with a Delivery team in charge of RtR activities organized as follows:

RtR Regional Operations Process Managers

  • Deploy procedures / orientation defined at RtR Process Management level
  • Manage the delivery accounting team in each region

RtR Regional Costing Manager

  • Deploy common/standard procedures and support local teams
  • Establish the link between Process Management and Delivery team in each region
  • Mostly act as supervisors to ensure process efficiency and performance enhancement
  • Create/Maintain the controlling network
  • Leverage the controlling network to achieve process efficiency and transmission of required expertise

RtR Service centers 

  • Perform daily operations related to the Product Costing process, in line with guidance and rules defined upfront, for activities not requiring proximity to customers or specific local knowledge

  • Optimize and standardize operations, as well as documentation materials (mostly Operating Procedures).

  • Offer standard services and conduct related internal controls

  • Three centers serving their regions as well as the whole world, and coordinated worldwide (Lisbon, Curitiba, Bangkok)

Non-SBS Roles:

Corporate Controlling

  • Responsible for giving instructions on process objectives

GROUP ACCOUNTING REPORTING (GAR)

  • Responsible for giving instructions on process objectives

GBU FinanceDirectors

  • Responsible for financial statements compliance

  • Designate FRA and GCCO, and in general, all responsible of internal controls to be performed by the GBU

GBU Finance Responsible Assigned (FRA)

  • Responsible for validating Costing processes

  • For reason of simplification, there is only one role GBU FRA, however in some sub-processes this role could be developed by 2 actors: FRA and GCCO

 

4.2   Inventory Valuation: General Process Description

4.2.1  Inventory Valuation  Roles and Responsibilities

The Inventory Valuation activity implies inputs and responsibilities from various actors in the organization, as described below:

 

4.2.1.1    SBS actors of the Costing Model Architecture

RtR PE Costing

  • Define the generic roles of the Costing and cost accounting organization
  • Define, communicate and implement Inventory valuation procedures
  • Validate  Inventory valuation procedure
  • lead Inventory valuation projects
  • Training of resources when needed
  • Design of internal controls on the process

RtR Regional Operations Process Managers

  • Organize teams in order to ensure the proper functioning of the Inventory valuation process
  • Ensure a proper allocation of resources to the Inventory valuation process

RtR Regional Costing Managers

  • Ensure the link between process management and delivery team in each region
  • Provide feedback, relay information from the regions to PE costing
  • Control and validate the requests sent by GBU
  • Supervise internal control efficiency within the region

RtR service centers

  • Input in the systems and reporting tools (SAP, BFC) all the information provided by out of SBS functions
  • Maintain the system accuracy

 

 

4.2.1.2    Non-SBS actors of the Costing Model Architecture

FRA/GBU controller

  • Estimate NRV reserve
  • Perform product mapping for intercompany margins
  • Validate SAP reports
  • Define physical inventory count process
  • Manage and supervise physical inventory count
  • Estimate slow turn reserve
  • Prepare inventory reports

Inventory manager

  • Manage and supervise physical inventory count
  • Assist in preparation of inventory reports

 

 

4.2.2  Inventory valuation Flowchart

Note: for Product Costing/Variance Absorption, refer to the Product Costing Procedure

4.3   Physical inventory count

4.3.1  Key principles

 

Physical inventory count is performed to verify the existence (quantities & values) and ownership of inventories. The following are the main underlying rules governing the physical inventory count:

  • RtR PE is responsible for setting the physical inventory count framework
  • The Financial Responsible and Inventory Manager are responsible for preparing the inventory count process, conducting and supervising the count as well as preparing the inventory reports 
  • The Regional Costing Managers control the process execution, and validate the inventory reports

Note: For PF1, the physical inventory count process is entirely managed by the supply chain. There is no worldwide internal control procedure in place 

4.3.2  Roles and Responsibilities

The physical inventory count activity implies inputs and responsibilities from two main actors in the organization (SBS), as described below:

RtR PE  is responsible for defining the framework for physical inventory count:

  • setting the deadlines:
    • A complete count of the items included in the inventory records of each warehouse should be done for 31st December.
    • A count of items representing 90% of the value of prior end inventory should be done as of 30th September, each year
  • instructing the segregation of duties (SOD) rule
  • instructing the Blind Count rule
  • determining the threshold for the value of discrepancies above which a second count must be performed (0.5% of the total amount of the inventory concerned)

Regional Costing Manager is responsible for:

  • controlling the process execution
  • conducting the different IAC along the process
  • validating the inventory report 

4.3.3  Process Flowchart

Note: E-room will be gradually replaced.

4.4   Reserve estimation

4.4.1  Key principles

According to IAS2, when “realisation value” of inventories decreases below “historical cost value”, inventories must be depreciated. For this reasons reserves estimation must be performed to provision for the impairments. The following are the main underlying rules governing the reserves estimations:

  • RtR PE is responsible for providing evaluation reports
  • GBU performs the reserves estimation based on IAS 2
  • The Regional Costing Managers validate and approve the provided estimation

Note: For PF1, the GBU is responsible for performing the reserves estimations based on IFRS standard. There is no involvement of SBS, neither for standards’ setting, nor for internal control

4.4.2  Roles and Responsibilities  

The reserves estimation activity implies inputs and responsibilities from three main actors in the organization (SBS), as described below:

RtR PE  is responsible for:

  • designing evaluation reports
  • reviewing the evaluation reports with external auditors

RtR Regional Costing Manager is responsible for:

  • validating the reserves estimations
  • instruct RtR BO to input the data in the system

RtR BO is responsible for:

  • running evaluation reports
  • calculating reserves
  • posting the validated reserves in the system

4.4.3  Process Flowchart

4.5 Internal Core Control

In order to ensure a control on the physical inventory count, the Internal Core Control IAC 04.13.00.01 has been established. 

  • Control objective: Ensure that a physical inventory procedure exists and that compliance with corporate guidance is evidenced by check-list in September. 

In order to ensure a control on the physical inventory count, the Internal Core Control IAC 04.13.00.03 has been established. 

  • Control objective: By September coverage rate in value is above 90% of prior year-end value for other type of material than maintenance spare parts and industrial supplies. For maintenance spare parts and industrial supplies, each reference is counted at least every 3 years and 80% of prior year-end value is counted each year. For other type of materials than maintenance spare parts and industrial supplies, all warehouses are counted every year. 

In order to ensure a control on the physical inventory count, the Internal Core Control IAC 04.13.00.04 has been established. 

  • Control objective: Last quarter planning for stock count is validated by Enterprise Finance Director or BU analyst. 

In order to ensure a control on the physical inventory count, the Internal Core Control IAC 04.13.00.07 has to be established. 

  • Control objective: Inventory report is validated. 

In order to ensure a control on the inventory reserves estimations, the Internal Core Controls IAC 03.08.08 and IAC 03.08.09 have been established.

  • Control objective: Review inventory reserves and re-evaluation in accordance with Group Policy.

In order to ensure a control on the intercompany margins, an Internal Core Control IAC has to be established. 

  • Control objective: Intercompany margins calculations are validated.