Importance of stock audit in an organization

Posted by ICS Admin Under Stocks On July 28, 2018

Stock audit or inventory audit is an accounting process which is performed to calculate acompany’s total stock of physical goods/raw materials. This process is especially important in production and retail companies which are operating in multiple locations. The stock audit helps to keep a track of the amount of physical assets remaining and make necessary arrangements to order new stock. If the company is dealing with various vendors and suppliers, a stock audit will make the inventory management process easier.

As more companies are entering the global market, the business owners & stakeholders need to find innovative solutions to boost the business. Inorder to minimize the operations cost & improve business performance; organizations should conduct timely stock audits. The inventory level of a company has a direct impact on the company’s profit. An error in inventory report can lead to additional expenses for the organization.

Although the stock audit of essential physical inventories is generally conducted at or near the end of the year, it is better to carry out the audit in specified time intervals to ensure continuity of business operations. The availability of raw materials is a critical aspect to consider in manufacturing companies.Stock audit is also useful to keep an account of the quantity and quality of raw materials.

Why Stock Audit?

  • Records exact level of inventory and help to avoid shortage or overstocking of materials.
  • Helps to find out inventory losses caused due to wastage, damage or theft.
  • Reveals outdated raw materials and incorrect orders supplied to customers
  • Compare the actual quantity of stock against that noted on the accounting records
  • Avoid unnecessary investment on raw materials and can help to save money
  • Enable the business owners to understand the true financial status of the company
  • Helps to find out discrepancies in the packaging and warehouse procedures

A stock audit can be carried out at the warehouse, a distributor location or at a retail outlet.  The complexity of a stock audit increases with the number of audit locations. An inventory audit involves auditing the stock records &transactions and matching physical stocks with the stock records.

On a general basis, the following factors are reported during a stock audit:

  • SKU(stock keeping unit) – Every SKU is assigned a unique identification number which is usually same as the EAN or UPC
  • Product details – For e.g. IMEI No., Serial No.;
  • Valuation of the stock
  • Deviation of stock from the records

Cycle counts

Cycle count refers to the process of counting inventory items available in a particular physical location. Depending upon the nature of inventory, number of transactions and the value of items, cycle count can be carried Daily, Quarterly/Half Yearly or Yearly.  The end of the year cycle count is referred to as Wall to Wall Cycle Count. This is a mandatory audit which should be conducted during the end of every financial year.

Various asset management softwares are available for managing & recording the inventory levels. These programs can be used to conduct effective stock audit procedures.