Stock audit, in general usage, is considered an important auditing term that refers to the physical verification of the inventory. However, at times, it may also involve the valuation of the inventory but it would depend on the terms of reference or the engagement letter of the assignment. When heading forward, it is important to remember and keep in consideration the purpose for which the audit is being conducted because different audits may have a different approach which would ultimately depend on the aim.
In other words, a stock audit is a statutory process that every business institution needs to perform at least once in a financial year. As far as the stock audit process is concerned, the process mainly involves the counting of physical stock presenting the specified premises and verifying the same with computed stock maintained by the company. The reason and purpose behind executing these are to correct the discrepancies present in the book stock when compared to physical stock bypassing necessary adjustment entries.
Reasons why one should look forward for the stock audit:
- To update the opening stock details.
- To identify the discrepancy between book stocks also known as computed stock and physical stock.
- To update the actual physical stock as book stock.
- To ensure proper preservation and handling of stocks.
Key benefits of stock audit:
- Direct impact on costs and bottom line
- Prevent pilferage and fraud
- Identifies slow moving stock, obsolete stock, dead stock and scrap
- Third party independent opinion, especially for agent warehouses
- Identifies gap in current inventory management process
- Enable accurate valuation of inventory
List Of Documents Required For Stock Audit:
- Stock Statement as on date of verification
- Provisional balance Sheet, Trial balance as on date of verification
- Latest audited financials
- Stock Insurance policy if any
- Invoices of Purchases, Sales
- Stock Register
- Method of valuation of closing stock
- Stocklist of non-moving, obsolete, deadstock
- Documents relating to the constitution of the business
- Debtors and Creditors list for the latest 6 months
Can also read: Difference Between a Standing Order and Direct Debit