Stock Audit

In normal usage, the term “stock audit” refers to the physical inspection of the inventory and is regarded as a crucial auditing term. However, depending on the assignment’s terms of reference or engagement letter, it could occasionally additionally involve inventory value. The reason the audit is being undertaken must be kept in mind as you move along because different audits may take different approaches, which would ultimately depend on the goal.

To put it another way, stock audit is a required procedure that every business organisation must carry out at least once per fiscal year. Regarding the stock audit procedure, it mostly entails counting physical stock that is presented at the designated premises and comparing it to computed stock that is kept by the company. This is being done in order to pass the required adjustment entries and fix any inconsistencies between the book stock and the actual stock that exist.

Performing a stock audit

Cut-off Analysis is the method through which an auditor (or auditors) looks at the business’s practises. Prior to doing the physical count and the transactions that follow it, this requires testing the most recent receiving and shipping transactions. This guarantees their complete accountability.

Physical inventory counting is the practise of counting each item in an inventory to make sure that everything is accounted for. an examiner

To actually count each item, an auditor typically makes use of equipment like a bar code scanner.

Inventory layers ensure that the recorded inventory is accurate whether the organisation uses FIFO (first-in, first-out) or LIFO (last-in, first-out).

High-value item inventory analysis is another name for ABC Analysis, which groups A products together with mid-tier B products and low-value C products. It saves time and improves stockroom management.

Inventory-in-transit analysis tracks the period of time when materials are travelling between two or more sites between the dates of shipment and receipt. This audit helps to ensure that everything is secure and undetected while being transported.

Freight cost analysis is a method for figuring out how much it will cost to ship products and move them from one location to another. Finished-goods cost analysis is a method for figuring out how much it will cost to produce inventory that is ready for sale. The worth of the inventory for the current accounting period is then examined by an auditor.

An important step that is conducted when differences between inventory counts and actual amounts in the warehouses are discovered is the study of reconciling goods. The auditor

checks for mismatched amounts, and if there are, they are corrected before making changes to the record.

In order to ensure that your brand is always in front of your target customers, it is crucial to know where you stand in terms of inventory and supply.

Major advantages of stock audits:

  1. Identification of outmoded stock, dead stock, slow-moving stock, and
  1. Preventing fraud and theft
  1. Instantaneous stock value information
  1. Lowering costs and improving results
  1. Inclusion of agent warehouses in special agreements for third-party opinions
  1. Fewer gaps in the current inventory management method


As organisations expand into new locations and become more dependent on vendors, dealers, and partners, stock audits are becoming more and more critical. Any of the aforementioned locations house assets like stock, tangible equipment and machinery, and even people, so a strong control system is necessary to ensure the proper operation of the firm.

The major considerations while completing a stock audit are as follows:

  1. Examining cut-off methods and closely examining follow-up
  1. Authentication of actual stocks
  1. Checking the stock register
  1. Reports on stock theft and damage
  1. Financial Records Comparison with Other Records, Such as Stock Register
  1. Disclosure of disparity
  1. Stock-in-Transit valuation and confirmation
  1. Validation of Stock Price

Checklist for Stock Audits


One crucial area of any firm where fraud is more likely to occur is inventory. Its department is where thefts and damages happen more frequently.

For everything to work well, it is best to maintain tight control over all procedures, checklists, and regular stock audits.

The inventory audit check list is provided below.

  • Inventory records are kept using stock audit software, which is typically connected with
  • The procedure for stock appraisal, the elements of inventory cost, and the valuation technique
  • Periodic comparison of stock records with actual
  • Format and content of MIS connected to
  • Stocks are physically secure with CCTV and firefighting
  • Protection for
  • Inventory is divided into high, medium, and low value
  • Inventory held by outside
  • Old stock, expired stock, stock with short shelf lives, and perishable
  • Inventory levels and study of inventory
  • Inventories with software duplication