Stock Audit

Stock audit, in general usage is considered as an important auditing term which 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 different approach which would ultimately depend on the aim.

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In other words, stock audit is a statutory process which every business institution needs to perform at least once in a financial year. As far 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 this is to correct the discrepancies present in the book stock when compared to physical stock by passing necessary adjustment entries.

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Why is a stock audit important?

There are several key reasons why an institution needs to perform a stock audit, including:

 

Identify the slow-moving stock, deadstock, obsolete stock, and scrap.
Find out discrepancies between book stocks and physical stock.
Update the physical stock that matches book stock.
Make sure the proper preservation and handling of stocks.
 

Stock audits is also an important factor in determining the benefits that should be offered to institutions. These are the key benefits of stock audits:

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To reduce cost and bottom-line.
To prevent pilferage and fraud.
As information of the accurate inventory value.
to reduce gaps in the inventory management process.
As special arrangements for third party opinion, including for agent warehouses.
As a good control mechanism in running the business.

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What is Stock Audit Report?

A stock audit report is used to document the details or information about the existing stocks of the business that has been gathered during a stock audit. Annual audit reports provide important details that are used by businesses in their financial statements.