What it is
An excess and obsolete reserve is an estimate built on usage and judgment. The calculation should be transparent so the auditor can test the data and the rates.
The workbook classes each item as active, excess or obsolete from months of supply and months since last movement, applies reserve rates you enter, and compares the total with the booked reserve.
When to use it
- Setting or auditing the inventory reserve.
- Reviewing slow-moving stock before year end.
- Challenging management’s reserve rates.
What’s inside
- Items tab with usage, movement and reserve per item
- Summary tab by class and tie-out to the ledger reserve
- Rates and thresholds as inputs
- Legend tab
Standard cited
This template follows AU-C 540. It is written in our own words, except for phrases the standard requires the document to contain, with [bracketed placeholders] for client details, amounts in USD and dates as MM/DD/YYYY. Check it against the current standard and your firm’s methodology before use. See AU-C 540 explained.
Questions
Are reserve rates provided?
No. They are your inputs, supported by history of sales below cost, scrap and liquidation.
Is this the same as the lower of cost or NRV test?
No. The NRV test compares cost with expected selling price less costs. This workbook estimates the reserve from usage.
Related templates
- Audit Program: Inventory
- Lower of Cost or NRV Inventory Test (ASC 330)
- Accounting Estimates Audit Memo
- Inventory Costing Recalculation (FIFO and Weighted Average)
Last updated 11/06/2026. All free templates.