Stock Audit Process and Procedure

Stock audit process and procedure Introduction:

In general Stock, an audit is considered as an essential term which means the physical verification of the inventory. However, it may involve the valuation of the merchandise or Stock. But it would depend on the term of reference letter of the assignment. When we talk about an audit, it is necessary to keep in mind what is the purpose for which the audit is conducted because not every audit is same they may have a different approach which depends upon on purpose.

 The stock audit is an essential process which needs to perform by every company or business at least once in a financial year. In India, stock audit process mainly involves the counting of physical Stock and presenting the specified premises. Moreover, the Stock is also verified by a computed inventory of the company. However, the purpose behind to audit the Stock is to correct the mismatch present in the Stock when compared to physical Stock bypassing necessary adjustment entries.

Stock audit process and procedure:

To perform stock audit procedure, these are several things that could occur:

Cut off Analysis :
In this process, the auditor analysis the company procedure, which includes the last few receiving and shipping transactions. The test aims to make sure every physical transaction is fully accounted or not.

Inventory Counting:
In this step, the auditor counts every piece of inventory assets. For this purpose the auditor use bar and code scanner to physically measure each item

Inventory Layers :
In this process, the company make sure the record inventory validation by using FIFO (First in First out )OR LIFO(Last in First Out) methods.

Categorize inventory item :
This method helps to better management of stockroom by divide products into groups like High value is A, mid-tier is B, and low cost is C.

Transit Analysis of inventory :
Transit analysis helps to track time between the date of shipment and receipt when items are moving from one place to another. The audit helps to make sure that all things are safe while in transit.

 Freight Cost Analysis:
Cost analysis determines shipping costs and costs to get products from different locations.

 Finished goods cost accounting:
Finished goods mean the inventory which you have completed and ready to sell in the market. In this process, the auditor analyzes the value of the current Stock.

Reconciling items investigation :
It is the most crucial processes that are taken when a mismatch is found between the inventory count and the actual amount in the warehouse. The auditor examines whether or not there are unmatched amounts then makes adjustments to the record.

Benefits of Stock Audit:

Avoidance of fraud and pilferage
Enable accurate valuation of inventory
Direct impact on cost and bottom line
Instant information about the valuation of inventory
Third-party independent opinion
Identify dead Stock and scrap
Reduce the gaps in the present inventory management process
Identify slow-moving Stock
Frequently Asked Question (FAQs):

What is Stock ?
Stock audit refers to the physical verification of the inventory asset which needs to perform by every company or institution to ensure that the physical Stock and computed stock match.

 What is Stock Audit Report?
The stock audit report is the documentation of the existing Stock of the business that has been gathered during a stock audit.

Why is the Stock Audit Required?
The stock audit is required to reduce the unnecessary investment on Stock to ensure you have an excellent line balancing in the process.

 What is the Purpose of Audit?
The purpose of a stock audit is to ensure compliance with laws and regulations to maintain an accurate financial report of company inventory management.


Drafted By:
CS.A.Maniraj.,B.Com.,ACS.,CA(Fin), Independent Director 
Certified CSR Professional., Certified GST Professional.

Stock Audit Process and Procedure
Maniraj Anantham 3 December, 2022
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