STOCK AUDITING

A stock audit is a type of operational audit that focuses on an organization’s inventory and stock. During a stock audit, an auditor will typically examine various aspects of an organization’s inventory and stock management processes to ensure that they are accurate and comply with laws, regulations, and standards.

SOME OF THE THINGS THAT AN AUDITOR MAY CHECK DURING A STOCK AUDIT INCLUDE:

Physical inventory count:

The auditor will conduct a physical count of the organization’s inventory and compare it to the inventory records to ensure that they match and that there are no discrepancies.

Stock movements:

The auditor will review the organization’s stock movements, including stock purchases, sales, and transfers, to ensure that they are accurately recorded and that they comply with laws, regulations, and standards.

Stock Valuation:

The auditor will review the method used for valuing the stock and check if it is in compliance with the accounting standards.

Stock location:

The auditor will check the organization’s stock location and ensure that it is properly secured and protected from damage or loss.

Supporting documentation:

The auditor will review supporting documentation, such as invoices, receipts, and purchase orders, to ensure that they match the stock movements recorded in the inventory records.

Stock control systems:

The auditor will evaluate the organization’s stock control systems and procedures to ensure they are effective in preventing errors and fraud, and that they comply with laws, regulations, and standards.

Obsolete and slow-moving stock:

The auditor will check for any obsolete or slow-moving stock and ensure that it is properly accounted for in the financial statements.

Insurance coverage:

The auditor will verify that the organization has adequate insurance coverage for its inventory and stock.

These are some of the key things that an auditor may check during a stock audit, but the scope of the audit may vary depending on the organization, the purpose of the audit, and the regulations that apply.

THE PROCEDURE FOR A STOCK AUDIT TYPICALLY INCLUDES THE FOLLOWING STEPS:

Planning:

The auditor will plan the audit by reviewing the organization’s inventory and stock management processes and identifying any areas of concern. The auditor will also determine the scope of the audit, including which inventory items will be included and any specific regulations or standards that apply.

Preparation:

The auditor will prepare for the audit by reviewing the organization’s inventory records and other relevant documentation. The auditor will also conduct a test count of inventory items to verify the accuracy of the records.

Physical inventory count:

The auditor will conduct a physical count of the organization’s inventory, which will typically be done on a specific date. The auditor will compare the physical count to the inventory records and identify any discrepancies.

Analysis:

The auditor will analyse the results of the physical inventory count and the inventory records to identify any errors or issues. The auditor will also evaluate the organization’s stock management processes and controls to ensure they are effective and comply with laws, regulations, and standards.

Report:

The auditor will prepare a report detailing the results of the audit, including any discrepancies or issues identified and recommendations for improvement.

Follow-up:

The auditor will follow up on any issues or recommendations identified during the audit to ensure that they have been addressed by the organization.

The stock audit process may vary depending on the organization, the purpose of the audit, and the regulations that apply, but the above steps are generally the standard procedure for a stock audit.

A REPORT CONTAINS:

A stock audit report typically includes the following information:

Executive summary: A brief overview of the audit, including the purpose, scope, and key findings.

Audit objectives: A description of the specific objectives of the audit, including any laws, regulations, or standards that apply.

Audit procedures: A description of the audit procedures that were performed, including the physical inventory count, the analysis of inventory records, and the evaluation of stock management processes and controls.

Results: A detailed presentation of the audit results, including any discrepancies or issues identified during the audit, such as missing inventory items, errors in the inventory records, or weaknesses in the stock management processes.

Recommendations: A list of recommendations for improvement, including specific actions that the organization should take to address any issues identified during the audit.

Conclusion: A summary of the audit results and the auditor’s overall opinion on the accuracy and reliability of the organization’s inventory and stock management processes.

Appendices: Additional information or documentation that support the findings in the report, such as detailed schedules of inventory items, copies of purchase orders, or test count results.

Audit date and signature: The date the audit was performed and the signature of the auditor, providing an official record of the audit.

It’s important to remember that the report should be clear, concise, and easy to understand, and written in a professional manner, including any relevant standards or regulations and the purpose of the audit. Additionally, the report should be addressed to the person or group that requested the audit and should be delivered in a timely manner.

WHO NEEDS TO CONDUCT STOCK AUDIT?

Stock audits are typically conducted by independent auditors, such as certified public accountants (CPAs) or internal auditors, who have the necessary skills and expertise to evaluate an organization’s inventory and stock management processes. Stock audit is often conducted by the organization’s internal audit department as part of their regular operational audit process.

THERE ARE CERTAIN CASES WHEN STOCK AUDIT IS MANDATORY:

• Publicly traded companies are typically required by law to have their financial statements audited, and this may include a stock audit as part of the financial statement audit.
• Organizations that are required to comply with specific laws or regulations, such as those related to taxes or labour laws, may be required to have a stock audit conducted.
• Organizations that have a large amount of inventory or stock may choose to conduct a stock audit to ensure the accuracy of their inventory records and to identify any areas for improvement in their stock management processes.
• Additionally, some organizations may choose to conduct a stock audit voluntarily as a part of their risk management process or good governance practice, even though it’s not required by law. This can help them to identify and manage risks and improve their inventory and stock management processes.

Overall, stock audits are typically conducted by independent auditors or internal auditors who have the necessary skills and expertise, and it is often mandatory for certain organizations, but it can also be done voluntarily.