Stock Audit

An efficient inventory management process can reduce the frequency, length, and complexity of audits. Hence, every business organisation must perform a stock audit to update and ensure that the physical and computed stock are properly matched. The stock audit helps to maintain inventory accuracy, spot causes of shrinkage, and ensure that the entity always has the correct quantity of stock at the right time leading to the smooth running of the business.

A stock audit has a significant role for organisations that conduct business through the internet; as in e-commerce, sales can occur anywhere across the globe and are thus more unpredictable.

Also, a stock audit makes the inventory management process easier for the entities that deal with different suppliers and vendors.
 

Documents required for stock audit are:

* Stock Statement as on date of verification

* Provisional Balance Sheet and Trial Balance as on date of verification

* Latest audited financial statements

* Records of stock insurance policy, if any

* Invoices of purchases and sales

* Stock Register

* Documents related to the constitution of the business

* Debtors and Creditors list for the latest six months

* Declaration on the method of valuation of closing stock

* List of obsolete and deadstock

* Any other document as required
 

Usually, the following steps are involved in a stock audit:

* Evaluating which items to audit: The first step in the stock audit is evaluating which items are to be audited. Higher-risk stock items should be assessed more frequently. It is known as ABC Analysis. High-value items are grouped under ‘Category A’, mid-tier under ‘Category B’ and low values under ‘Category C’. ABC analysis can also help to manage a stockroom better and save time. 

* Creating an audit schedule: The second step is to map out an auditing schedule. The time to carry out the audit should be chosen, keeping in mind that it is least effective for the normal business flow but also happens at a good frequency to ensure those high-value items are accounted for. The procedures and policies of buying and shipping items should also be considered while making the audit schedule.

* Physical verification of inventory: It is the procedure of counting every inventory item. At this step, using technology, like a bar code scanner, should be considered to physically count each item and reconcile the same with the general ledger.

* Collecting the necessary documents: At this stage, all the relevant and important documents must be collected and made sure that they are genuine.

* Conducting the audit: This stage involves carrying out the stock audit through various verification methods such as analytical procedures, layering, inventory transition analysis, etc. In this step, the invoices are matched with the actual prices of the products to check if the items were billed correctly and were sold to the correct customer and on the correct dates.

* Recording the findings: All the results till this stage must be duly recorded and documented as it would help discover gaps in compliance, if any, and look at opportunities to fix the same.

* Reconciling items: If there is any inconsistency between inventory counts as per the entity’s records and the actual numbers on the warehouse shelves, then it must be found out why there are differences between these two figures and adjustments must be made to the records to reflect this analysis.
 

No, a stock audit is not required under any law.
 

Since the stock audit is not mandatorily required under any law, a stock auditor has no prescribed qualifications. Hence, any expert such as a Chartered Accountant, a Cost Accountant, or any other professional can carry out a stock audit, and he will be authorised to sign the stock audit report.
 

A stock audit is a physical verification of inventory/stock, including valuation, to correct discrepancies and ensure adequate preservation and handling.

By physically verifying inventory, identifying discrepancies, and updating stock records, a stock audit can detect and prevent pilferage and fraud.

A company can prepare for a stock audit by conducting a preliminary internal audit and reconciling discrepancies between book and physical inventory.

A stock audit is crucial for companies to ensure the accuracy of their inventory records. It helps identify any discrepancies between the physical stock and the stock maintained in the books. This process enables necessary adjustments to be made and provides a more reliable picture of the company's stock position.

Every company/business should conduct a stock audit at least once during a particular financial year. However, the frequency may vary based on the company's size, nature of business, and regulatory requirements.

The stock audit procedure typically includes physically counting different inventories, visiting the premises, and verifying the physical stock with the computed inventory maintained by the company. The purpose is to identify and rectify any discrepancies, making necessary adjustment entries in the books.

Updating the opening stock details in Shopper is crucial for maintaining accurate records. It ensures that the stock audit starts with correct baseline information, allowing for more precise tracking of stock movements and accurate valuation.

Identifying discrepancies between book stocks (computed stock) and physical stock is essential to rectify any inaccuracies or errors in the company's inventory records. It helps maintain the integrity of the stock data and enables necessary adjustments to be made.

Updating the actual physical stock as book stock ensures that the inventory records reflect the real-time stock position accurately. It helps in avoiding discrepancies and provides a reliable basis for decision-making regarding stock management and financial reporting.

Stock audit identifies gaps in the current inventory management process, such as inefficiencies, inaccuracies, or lack of controls. This allows companies to implement improvements, streamline operations, and enhance overall inventory management practices.