Inventory audit or stock audit refers to physical verification of a company or institution’s inventory assets. There are several types of stock audits depending upon the purpose and every stock audit will require a different approach. Every business institution at least needs to perform a stock audit once in a year to update and assure that the physical stock and the computed stock is properly matched. A stock audit helps to correct discrepancies between the physical stock and the book stock. The stock audit helps to track the amount of physical assets remaining and make necessary arrangements to order new stock. If the company is dealing with different suppliers and vendors, a stock audit will make the inventory management process easier.
Why Stock Audit?
It is very essential to conduct inventory audits to maintain inventory accuracy, spot causes of shrinkage, and ensure that one always have the right quantity of stock at the right time. A good understanding of stock flow will also help ensure the business runs smoothly.
Inventories are prone to following risks:
Inventory audit checklist
The inventory audits have three phases: planning, execution, and analysis. Inventory is one of the important areas for any business where chances of fraud are more as it’s a department where thefts and damages occur. Having effective controls, appropriate processes, proper checklist and regular stock audit is essential for this function. Following is the checklist for Inventory audit:
Inventory Cut off Process
Cut off process is an essential process in Inventory valuation. When inventory is physically counted and inwards (receipts) and outwards (issues) movement of inventory is not stopped, it may cause many difficulties in the counts. This is why near of the date of inventory counting day, stop the movement of stock. If during this period stock is moved for any reason, it is likely to affect the inventory count. Auditor requires studying the cut off process of management and making sure it is adequate.
Although the inventory audit of essential physical inventories is generally conducted at or near the end of the year, it is better to carry out the audit in specified time intervals to ensure continuity of business operations. It is a mandatory audit which should be conducted during the end of every financial year. Various assets management software’s are available for managing & recording the inventory levels. These programs can be used to conduct efficient stock audit procedures. Inventory audit is important to reduce unnecessary investment on stocks and to assure that a proper line balancing in the process. Huge levels of stock mostly result in unnecessary overstocking thus resulting in poor cash flows and financial loss.
Here at AJSH, we assist our clients in compliance with Inventory audit, statutory audits, internal audits and various other compliances. If you want to know more about compliances or have any query regarding the audit compliances, kindly contact us.