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Stock Audit

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Stock Audit

In simple words, the stock audit means physical verification of inventory; it may also involve the valuation of inventory depending upon the terms of reference. An inventory audit is considered a generally accepted auditing procedure. Stock Audit or Inventory check  is a physical verification of quantities and conditions of items held in the warehouse. The reason behind this check is to know the position of existing stock and is independently checked.

Meaning of Stock

Inventory normally comprises of;

Stores

Spares parts

Loose tools

Maintenance supplies

Raw materials including components

Work in progress

Finished products

Waste or by products etc.

Purpose of Stock Audit;

An institution must perform a stock audit to:

* Pinpoint and put aside the deadstock, stock moving at a staggering pace, deadstock and scrap

* Identify the mismatches between calculated stocks available in books and physical stock available in reality

* Update the records as per physical stock or change the physical stock as per book stock

* Ensure due preservation and management of stocks

* Benefits of Stock Audit Consultant

* Identification of slow moving stock, obsolete stock, dead stock and scrap;

* Avoidance of pilferage and fraud;

* Instant information of value of inventory;

* Cost reduction and bottom-line;

* Special arrangements for third party opinion, including for Agent warehouses;

* Reduction of gaps present in the inventory management process.

 

Important aspects of Stock Audit:

According to the Guidance Note of ICAI on Stock Audit, following are the important aspects of Stock or Inventory Audit.

Evaluation of Internal Control: It is the separation of inappropriate or conflicting functions and adoption of standard methods to record the stock movement and cross-check the data generated by various departments. Under this evaluation, the auditor also checks specific controls over issues, receipts, physical stock and calculated inventory in records.

Verification: Management holds responsibility for the physical verification of stocks. Under the stock verification process, the auditor is responsible for acquiring enough & reliable audit evidence to validate the declarations made by the management about the Existence of stock, Ownership of stock and Valuation of stock.

* The assertion about the existence of stock confirms the availability of recorded stock at the end of the year.

* The assertion about Ownership of stock confirms that the entity-owned inventories are duly recorded and the recorded stock is owned by the entity.

* The assertion about Valuation of stock confirms that the method of stock valuation is correct and applied properly and the condition of the stock is identified based on their valuation.

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