Understanding Stock Audit :

Stock audit, is deemed as an important auditing term which refers to the physical verification of the inventory. Nonetheless, at times, it may also comprise the valuation of the inventory but it would depend on the terms of source or the engagement letter of the assignment. When leading onward, 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 finally depend on the goal.

The stock audit is a statutory process which every business institution needs to perform at least once in a financial year. As far as 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 objective at the back of executing this are to amend the discrepancies present in the book stock when compared to physical stock bypassing necessary adjustment entries.

Need For 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  • Reveals outdated raw materials and incorrect orders supplied to customers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.

Factors To Keep In Mind During 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

Reasons For Stock Audit:

Some of the key reasons why institution needs to perform stock audit:

  • Identify the slow-moving stock, dead stock, obsolete stock, and scrap
  • Find out inconsistencies between mentioned book stock and physical stock
  • Update the stock physically that equals to book stock
  • Make sure the proper preservation and handling of stocks

Advantages Of Stock Audit:

These are the key benefits of stock audit:

  • To decrease 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 provisions for third party opinion, including for mediator warehouses
  • As a good control mechanism in successionof the business.

Documents Required For Stock Audit:

Following is the basic procedure that is being followed for stock audit:

  • Cutoff analysis: This is when you halt operations such as receiving and shipping at the time of the physical count to ensure nothing is being handled and goes unaccounted for.
  • Physical inventory count: This is to make sure that the system’s numbers match up with your physical stock, counting each unit. The use of product barcodes and devices like inventory barcode scanners can help keep track electronically.
  • Analytical procedures: This involves comparing gross margins, inventory turnover ratio, and or unit costs of inventory with previous years.
  • ABC analysis: This is when you group items of different value and volume together, such as high-value items (or “A” products), mid-tier “B” products, and low-value “C” products. You may even choose to store these items accordingly this way (which can make it easier for an auditor who pays attention to mainly the high-value inventory items).
  • Freight cost analysis: This determines the costs of getting things from one place to another, such as freight shipping costs and tracking the time between the date of shipment and the date of receipt. This documentation accounts for any units that are in transit and also in case anything is lost or damaged in transit.
  • Finished goods cost analysis: This is ideal if you create your own products as it demonstrates when product is ready to be sold so an auditor can immediately value the inventory for the current accounting period. Auditors may test this inventory to ensure financial statements are accurate. Learn more about finished goods inventory here.
  • Overhead analysis: Knowing your indirect costs of doing business will help with budgeting. Outside of direct materials and labor, this looks at “hidden” expenses such as rent, utilities, and other costs of doing business — if you record overhead as part of your inventory costs.
  • Reconciling items: If there are discrepancies found in your inventory audit, you may wish to do a reconciling items investigation to determine the root cause. You’ll want to track if there are certain error-prone SKUs and keep an eye on them in the future.
  • Match invoices to shipping log: Verify that invoices match the amount of items and cost of inventory shipped from your ecommerce warehouse. This may be done at random by an auditor to verify that the right amount was charged to the right customer at the right time.

Documents Required For Stock Audit:


  • Sanction Letter
  • Stock Statement certified by a CA. for the last month.
  • Bank Statement for the last 3 months.
  • Particulars of Collateral Security to be checked.
  • In case of Co., Copy of Form No. 32 & 8 for creation/ alteration of Charge.
  • Balance Outstanding in bank of All Accounts.


  • Stock Statement as on date of Verification
  • Trial balance or Provisional Balance Sheet as on date of Verification.
  • Copy of latest audited balance sheet.
  • Insurance Policy (Incl. Bank Hypothecation Clause for primary as well as secondary Collateral Security.
  • Statistics of Purchase and Sales for last 6 months as well as for present month till date of Confirmation.
  • Invoices of Buying& Selling, Stock Register & other secondary Documents for authenticating internal controls.
  • Method of evaluation followed for Inventory with comprehensive working.
  • Copy of latest Excise/VAT/CST Returns filed.
  • Break up of Sales into export and domestic.
  • Details of non-moving and obsolete stock and also stock held for more than 6 months.
  • ABC examination of stocks based on the value of annual consumption of foremost items. (Only if Available)
  • Products manufactured with details of licensed capacity, installed capacity and actual utilized capacity.
  • Month wise details of buying and selling, stock, debtors and creditors for last six months
  • Copy of Constitution of the Entity.

How Asa Helps You In Stock Audit:

Auditing of stock is a time consuming process and involves both time and energy. But there is nothing to worry about.

We at ASA take full care to provide you with thorough and most accurate figures. During this audit all the records of sale, purchase and stock will be looked after carefully.
ASA’s team of experienced professionals will safeguard and scrutinize the assets and inventories properly.

We offer dependable stock audit services to companies and organizations. Our professionals will offer you quality results and output and will also help you control the cost of stock.

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