Stock Audit

Stock audit is also known as inventory audit. It is a term that refers to physical verification of a company’s inventory assets. There are types of stock audits depending on the purpose and every stock audit will require a different approach.

Every business needs to perform a stock audit atleast once a year to update and ensure that the physical stock and the computed stock match. A stock audit helps correct discrepancies between the physical stock and book stock.


1. 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 takes place

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:

  • 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

2. How to perform stock audits?

There are several methods by which a stock audit can be performed:

  • Cut-off Analysis – the process where we examine the company’s procedures. This involves the test of the last few receiving and shipping transactions before conducting the physical count and transactions that follow it. This makes sure that they are fully accounted for.
  • Physical inventory counting – the process of counting every piece of inventory asset to account for them all. We usually use technologies like a bar code scanner to physically count each item.
  • Inventory layers – a process taken if the company does inventory using FIFO (first-in, first-out) or LIFO (last-in, first-out) to make sure that the recorded inventory is valid
  • High-value item inventory analysis – another term used for ABC Analysis that refers to the grouping of A products, mid-tier is B, and low-value is C. It is timesaving and helps to better manage a stockroom.
  • Inventory-in-transit analysis – an analysis to track the time between the date of shipment and the date of receipt when materials are moving between two locations or more. This audit helps to make sure that all the items are not lost and safe while in transit.
  • Freight cost analysis – a process to determine shipping costs and the costs to get products from one place to another.
  • Finished-goods cost analysis – the inventory which you have completed and are ready to sell is known as finished goods. We analyze the value of the inventory for the current accounting period

Subsequent to the stock audit, we reconcile the items audited and support our clients in managing and rectifying the discrepancies.

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